The classical model differs from the Keynesian model in that
A)monetary policy does not impact output in the Keynesian model.
B)the classical model focuses on the long-run and the Keynesian model focuses on the short-run.
C)fiscal policy is more powerful in the classical model than in the Keynesian model.
D)the classical model believes monetary policy is a powerful impact on output and fiscal policy is not.
E)None of the above

Question

Quizplus · Accepted Answer

The classical model is focused on the long-run and assumes that the economy will naturally return to its equilibrium level of output over time, regardless of short-term changes in demand. In contrast, the Keynesian model focuses on the short-run and argues that government intervention through fiscal policy (and, to a lesser extent, monetary policy) can help stabilize the economy during periods of high unemployment and low output. Monetary policy is still seen as important in the Keynesian model, but it is believed to have less impact on output than fiscal policy. Thus, choices A, C, and D are incorrect.

The Classical Model Differs from the Keynesian Model in That