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Question 1 (1 point) The neoclassical view holds that long-term expansion of potential GDP due to...

 The neoclassical view holds that long-term expansion of potential GDP due to _______ will determine _______ .

  •  economic growth; the size of the economy

  •  government spending; aggregate demand

  •  government spending: aggregate supply 

  • economic adjustments; cyclical unemployment


 If the neoclassical argument that the economy always moves back to potential GDP is accepted, then which of the following will be more important? 

  •  encouraging higher wages 

  •  fighting unemployment

  •  fighting recession

  •  encouraging long-term growth


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Answer #1

Ans) Neoclassical economist focus on supply and demand as the driving forces. According to them macroeconomy is stable and government should use laissez faire to operate the economy.

1) According to them economic growth determines the size of economy.

Option a.

2) According to them encouraging long term growth is important than focusing on temporary disturbances. As they believe macroeconomy is stable.

Option d.

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