Assume the economy is experiencing an inflationary gap, classical economists believe that:
A) flexible wages will restore full employment.
B) the federal government should decrease spending to shift the aggregate demand curve leftward.
C) the Federal Reserve should lower the interest rate.
D) the federal government should increase spending to shift the aggregate demand curve rightward.

Question

​ Assume the economy is experiencing an inflationary gap, classical economists believe that:
A) ​flexible wages will restore full employment.
B) ​the federal government should decrease spending to shift the aggregate demand curve leftward.
C) ​the Federal Reserve should lower the interest rate.
D) ​the federal government should increase spending to shift the aggregate demand curve rightward.

Quizplus · Accepted Answer

Classical economists believe that flexible wages will restore full employment in an inflationary gap. This is based on the idea that as wages adjust downward, firms will increase their supply of output, leading to lower prices and increased demand. Therefore, there is no need for government intervention through fiscal or monetary policy.

​ Assume the Economy Is Experiencing an Inflationary Gap, Classical

Assume the Economy Is Experiencing an Inflationary Gap, Classical