Question

If a neoclassical economist could choose only one of the following for an economy, which would...

If a neoclassical economist could choose only one of the following for an economy, which would it be?

a. A constant low rate of inflation

b. A steady increase in wages

c. A constant high level of income taxes

d. A constant low level of aggregate demand

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Answer #1

Neoclassical economists believe that the economy always operate at its long run level of output. Any change in the aggregate demand will only change the price level so that high aggregate demand will bring only inflationary pressures. This is based on the fact that it is the aggregate supply that helps in generating demand for a product and services. Government has no role to play so taxes should not be imposed. Therefore a constant low level of aggregate demand is required.

Option d is correct

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