I. According to new classical economicsts, is financing a reduction in current taxes by government borrowing likely to result in an increase in: (1) Aggregate demand (2) the real interest rate The official answer: A. neither A reduction in current taxes will definitely increase the aggregate demand. Government borrowing seems not. However, does government borrowing increase domestic money supply and then decrease the real interest rate?
new classical economists say that with perfect expectations there are generally no real effects
Sekyzhuo - Is that question from one of the CFA Institute sample exams or another source? If it is from one of the CFA institute sample exams, did it give reference to the specific study session/reading and page numbers for that topic?
FYI, the above question is presented in the CFAI’s 2003 sample exam.
I remember the comparison between Classical economists, Keynesianists, and Monetarrists in Notes “book 2”. So “new classical” economists are equal to “classical” ones. Many thanks, cfaisok! I just found this question from the official website, not the fee-paid ones, for Level I. Actually, these 32 sample questions are not very hard. (They are in the exam policy section, I think.)