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Author Question: Saving is a leakage from the circular flow. Why didn't the classical economists think saving might ... (Read 129 times)

Diane

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on: Jun 29, 2018
Saving is a leakage from the circular flow. Why didn't the classical economists think saving might cause consumption expenditures to fall short of total output?
 
  What will be an ideal response?

Question 2

Refer to the above figure. A unit tax has been placed on the good. The producer pays what amount of the tax?
 
  A) none of the tax
  B) P2 - P0
  C) P2 - P1
  D) P1 - P0


lorealeza

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Reply #1 on: Jun 29, 2018
Answer to Question 1

The classical economists believed that each dollar saved would be invested by firms so that the leakage of saving would be exactly matched by an injection of investment spending. The interest rate would adjust to ensure that saving equaled investment.

Answer to Question 2

D


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