Use the figure below to answer the following question(s). Figure 12-3 Refer to Figure 12-3. If an economy is currently operating at Y₁, which of the following would a new classical economist be most likely to favor? A) higher taxes and reductions in expenditures in order to shift the budget toward a surplus B) lower taxes and increase in expenditures in order to shift the budget toward a deficit C) a balanced budget D) no government action and reliance on the self-corrective mechanism

Question

Quizplus · Accepted Answer

A new classical economist would favor no government action and reliance on the self-corrective mechanism. This is because new classical economists believe that markets will always self-correct and return to their long-run equilibrium position, even in the face of short-run fluctuations in output and prices. They therefore do not believe that government intervention is necessary or effective.

Use the Figure Below to Answer the Following Question(s)