Which of the following is true of the classical model?
A)Changes in aggregate demand does not have any impact on the aggregate price level.
B)The aggregate supply curve is perfectly elastic.
C)An increase in aggregate demand increases the price level, output remaining unchanged.
D)Changes in aggregate demand determines the equilibrium output of the economy.
E)Real GDP and price level remain unchanged irrespective of changes in aggregate demand and supply.

Question

Quizplus · Accepted Answer

In the classical model, an increase in aggregate demand leads to an increase in the price level, while output remains unchanged. This is because the aggregate supply curve is assumed to be vertical in the short run, meaning that changes in aggregate demand only affect prices and not output. Options A, B, D, and E are all incorrect statements in relation to the classical model.

Which of the Following Is True of the Classical Model