Historical evidence has led economists to conclude that during periods of high inflation, the _____ model of the price level is a good approximation of reality because nominal wages and prices adjust more _____ than during periods of low inflation.
A) classical; quickly
B) modern; slowly
C) classical; slowly
D) modern; quickly

Question

Quizplus · Accepted Answer

The classical model assumes that markets quickly clear and that prices and wages adjust to changes in supply and demand. During periods of high inflation, prices and wages are expected to adjust more quickly, making the classical model a better approximation of reality. The modern model, in contrast, assumes that prices and wages are sticky and adjust slowly, making it less applicable during periods of high inflation.

Historical Evidence Has Led Economists to Conclude That During Periods