According to the New Classical Theory, a $50 Billion Increase

Multiple Choice

According to the new classical theory, a $50 billion increase in government expenditures financed by a $50 billion increase in the budget deficit will

A) cause real output to expand $200 billion if the marginal propensity to consume is three-fourths.
B) exert little impact on real output because higher real interest rates will crowd out private spending.
C) stimulate aggregate demand, causing prices to rise (inflation) .
D) be largely offset by a reduction in private spending because individuals will anticipate higher future taxes.