According to classical economists,
A) prices are rigid.
B) both V and Q are variable for an economy in short-run equilibrium.
C) changes in M cause changes in V.
D) the velocity of money is constant.

Question

Quizplus · Accepted Answer

According to classical economists, the velocity of money is constant, meaning that changes in the money supply (M) will cause proportional changes in nominal income (P x Q), where P is the price level and Q is real output. This is known as the quantity theory of money. Option A is incorrect as classical economists believe that prices are flexible in the long run, adjusting to changes in supply and demand. Option B is incorrect as classical economists believe that in the short run, changes in output occur primarily due to changes in the utilization of labor and capital rather than changes in prices. Option C is incorrect as classical economists believe that changes in M cause changes in P rather than changes in V.

According to Classical Economists