In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on _____ , the amount of investment spending depends on _____, and the amount of government spending is determined _____.
A) the interest rate; disposable income; by tax revenue
B) the real wage; the real rental price of capital; by factor prices
C) labor's share of output; capital's share of output; by the interest rate
D) disposable income; the interest rate; exogenously

Question

Quizplus · Accepted Answer

In a classical model with fixed factors of production and flexible prices, consumption spending depends on disposable income, investment spending depends on the interest rate, and government spending is determined exogenously (i.e., not based on economic factors within the model).

In a Classical Model with Fixed Factors of Production and Flexible