What is the main difference in the classical model as compared to the short-run macro model?
A) In the classical model the economy automatically operates at potential GDP while in the short run model the economy can operate at a different level of GDP
B) In the short run model the economy automatically operates at potential GDP while in the classical model the economy can operate at a different level of GDP
C) Fiscal policy has no effect in the short run model but is very effective in the classical model
D) There is no difference in the predictions of the two models
E) The classical model does a better job in predicting recessions than the short-run macro model

Question

Quizplus · Accepted Answer

The main difference between the classical model and the short-run macro model is that the classical model assumes that the economy automatically operates at its potential GDP in the long run while the short-run macro model allows for the possibility of the economy operating at a different level of GDP in the short run due to factors such as fluctuations in aggregate demand and supply shocks.

What Is the Main Difference in the Classical Model as Compared