The classical model is appropriate for analysis of the economy in the
A)long run, since evidence indicates that money is not neutral in the long run.
B)long run, since real and nominal variables are essentially determined separately in the long run.
C)short run, provided money is not neutral.
D)short run, provided real and nominal variables are highly intertwined.

Question

Quizplus · Accepted Answer

The classical model is designed to analyze the economy in the long run. In the classical view, real and nominal variables are determined independently in the long run, with real variables ultimately determining the level of output and employment, while nominal variables determine the price level. The classical model assumes that money is neutral in the long run, meaning that changes in the money supply only affect nominal variables and do not impact real variables in the long run.

The Classical Model Is Appropriate for Analysis of the Economy