Question

Question 51 pts

If consumers spend less national output falls in the Classical model.

True

False

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Question 61 pts

Which of the following would be a Classical explanation for why the Great Depression occurred?

The economy lacks self correction mechanisms.

A decrease in government regulation of labor markets.

The Smoot-Hawley Tariff Act

A decrease in the government's use of fiscal and monetary policies.

Answer 1

51. The classical economist believes in laissez-faire that is supply and demand adjust to set equilibrium. So there is no under consumption. Keynes criticised by saying free market economies tended to underconsumption and underspending. So the given statement is FALSE.

61. According to classical economists to reach the natural level of employment or output takes time. In the long run, there will be no depression. Unemployment is temporary. In the short run, the government cannot take measure by taking the fiscal and monetary policy to controll recession which is a cause of great depression. The last option is correct.