Question

In the short run the classical production function is concave. What property best explains why?

a		diminishing marginal returns
b		the classical dichotomy
c		crowding out
d		constant returns to scale

2.

Which of the following will shift the aggregate demand curve in the classical model?

	a	an increase in investor bearishness
	b	an increase in government spending
	c	a decrease in taxes
	d	an increase in the money supply

3.

Laissez-fair doctrine is interpreted as?

	a	government management is essential for efficient functioning of the economy
	b	full employment is not a goal
	c	government should play a minimal roll in the economy
	d	zero unemployment is not possible

4

When bond financed government spending drives up interest rates consumption and investment fall. The appropriate term for this is?

		laissez faire
		crowding out
		crowding in
		fiscal contraction

Answer 1

1. In the short run the classical production function is concave. What property best explains why?

Ans. a) diminishing marginal returns

2. Which of the following will shift the aggregate demand curve in the classical model?

Ans. b) an increase in government spending.

3. Laissez-fair doctrine is interpreted as?

Ans. c) Government should play a minimal role in the economy.

4. When bond financed government spending drives up interest rates consumption and investment fall. The appropriate term for this is?

Ans. Crowding out

In crowding out, government spending leads to an increase in the interest rate and due to which the investment falls.