If there is an increase in the price level in the classical model,
A)the equilibrium level of output will remain unchanged.
B)real wages remain constant.
C)money wages will rise proportionally.
D)all of the above.

Question

Quizplus · Accepted Answer

In the classical model, an increase in the price level does not affect the equilibrium level of output because the model assumes full employment and price flexibility. Real wages adjust to ensure full employment, and money wages adjust proportionally to changes in the price level to keep real wages constant.

If There Is an Increase in the Price Level in the Classical