Question

True or False:

Government spending can raise Aggregate Demand and real GDP in the Classical model.

Classical economists said that the velocity of money is very volatile.

Classical Economists claim interest rates guarantee that savings will equal investment.

According to money neutrality, the Ms determines nominal but not real variables.

According to Say’s Law, “demand creates its own supply”.

Answer 1

Question:- Government spending can raise Aggregate Demand and real GDP in the Classical model.

Correct Answer:- True

Reason:-Increased GDP and lower taxes can result in greater level of investments and saving.

Question:- Classical economists said that the velocity of money is very volatile.

Correct Answer:- False

Reason:- Velocity of money is related to the money supply which is not easily changed.

Question:- Classical Economists claim interest rates guarantee that savings will equal investment.

Correct Answer:- False

Reason:- Saving depends upon real interest rate, liquidity and preference of investment horizon.

Question:- According to money neutrality, the Ms determines nominal but not real variables.

Correct Answer:- True

Reason:-

Question:- According to Say’s Law, “demand creates its own supply”.

Correct Answer:- False

Reason:- As per Say’s Law, supply creates its own demand