(i) Which statement best describes the Classical Fiscal Policy prescription for

Question

(i) Which statement best describes the Classical Fiscal Policy prescription for inflation?

(a)(ii) Which statement best describes the Classical Fiscal Policy prescription for a recession?

(b)(i) Which statement best describes the Keynesian Fiscal Policy prescription for inflation?

(b)(ii) Which statement best describes the Keynesian Fiscal Policy prescription for a recession?

(c)(i) Which statement best describes the Monetarist Fiscal Policy prescription for inflation?

(c)(ii) Which statement best describes the Monetarist Fiscal Policy prescription for a recession?

(d)(i) Which statement best describes the Keynesian Monetary Policy prescription for inflation?

(d)(ii) Which statement best describes the Keynesian Monetary Policy prescription for a recession?

(e)(i) Which statement best describes the Monetarist Monetary Policy prescription for inflation?

(e)(ii) Which statement best describes the Monetarist Monetary Policy prescription for a recession?

(f)(i) Which statement best describes the Supply Side Policy prescription for inflation?

(f)(ii) Which statement best describes the Supply Side Policy prescription for a recession?

Do nothing, the economy will self-adjust. Do nothing. If V is stable, fiscal policy does not matter. Increase government spending and/or decrease taxes. Decrease government spending and/or increase taxes.

Explanation / Answer

First question is answered below

1.

Correct option: (a) Do nothing, economy will self adjust

Reason: Classical economics believes in the concept of laissez-faire, that is an economy is always fully capable of adjusting itself to equilibrium without government intervention since supply creates its own demand and thus markets fully adjust themselves in equilibrium.

Thus, even in case of inflation, classical economists will believe in no government intervention and thus no fiscal policy, allowing markets to self adjust themselves to equilibrium.

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