In the classical case,
A)the fiscal policy multiplier is zero
B)crowding out cannot occur
C)investment does not respond to interest rate changes
D)an increase in the income tax rate cannot lower the budget deficit
E)monetary policy is totally ineffective

Question

Quizplus · Accepted Answer

In the classical case, the fiscal policy multiplier is zero because any increase in government spending is offset by a decrease in private spending, due to the assumption of full employment and flexible prices.

In the Classical Case