A decrease in aggregate demand in the Classical model leads to
A) lower prices and lower output.
B) lower prices and higher output.
C) lower prices and unchanged output.
D) unchanged prices and output.

Question

Quizplus · Accepted Answer

In the Classical model, a decrease in aggregate demand is believed to lead to lower prices, but output remains unchanged due to the flexibility of prices and wages, allowing the economy to adjust back to full employment.

A Decrease in Aggregate Demand in the Classical Model Leads