The supply-determined nature of output and employment is a crucial feature of
A)the Keynesian theory.
B)the classical system.
C)monetarism.
D)the rational expectations model.

Question

Quizplus · Accepted Answer

The supply-determined nature of output and employment, which means that employment and output depend on the productive capacity of the economy rather than on the level of aggregate demand, is a fundamental principle of the classical system of economics. The classical economists believed that the economy would automatically achieve full employment equilibrium through the operation of flexible wages and prices, and that government intervention would only cause inefficiencies and distortions in the market. Keynesian theory, monetarism, and rational expectations model are all based on the idea that changes in aggregate demand can affect output and employment in the short run, and they advocate different forms of government intervention to stabilize the economy.

The Supply-Determined Nature of Output and Employment Is a Crucial