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In the neoclassical view of the economy, expansionary fiscal policy cannot work to raise equilibrium output...

In the neoclassical view of the economy, expansionary fiscal policy cannot work to raise equilibrium output because


it will raise unemployment.

it will disincentivize production.

flexible prices will eventually choke off any increase in aggregate demand.
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Answer #1

In the neoclassical view of the economy , prices and wages are completely flexible .Supply is at its full potential level ,therefore expansionary fiscal policy cannot work to raise equilibrium output because flexible prices will eventually choke off (stop) any increase in aggregate demand. Hence, option(C) is correct.

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