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So this question Is a bit confusing. 1. Which of the following would the Classical view...

So this question Is a bit confusing.

1. Which of the following would the Classical view predict would happen to the economy when there is a negative shock to wealth?

A. It will lead to greater consumption which will decrease GDP and lower employment.

B. It will lead to less consumption, which will decrease GDP and lower employment.

C. It will lead to less consumption, which will increase GDP and raise employment.

D. It will lead to greater consumption, which will increase GDP and raise employment.

I think it's B but are the Keynesian and Neoclassical perspectives the same in the short run?

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Answer #1

Yes, the now Classical agreed that the Keynesian are right in the short run and the Classical were correct in the long run. IN the short run the economy can go through shock but in the long run, everything will adjust quickly.

The answer is "B". It will lead to less consumption. which will decrease GDP and lower employment.

(Even as per neo-Classical the government should intervene but only in the short run to increase the AD and help market reach equilibrium. )

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