According to classical economics, an increase in government deficit spending leads to:
A. a shift in the demand for loanable funds to the right
B. a decline in interest rate
C. increase in investment
D. increase in saving equal to the decline in consumption
E. decrease in investment and consumption that balances the increase in government spending.
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Classical macroeconomics has come up 35 times in 7 exams since 2008.
This question is on Say's law and loanable funds, part of Classical macroeconomics in Macroeconomics.
The classical claim that supply creates its own demand and that the interest rate balances saving and investment.
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Question from the UGC-NET 2025 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.