Assuming an inflationary gap exists, classical economists believe that flexible wages will restore full employment.

Question

Quizplus · Accepted Answer

Classical economists believe that in the presence of an inflationary gap, wages and prices will adjust downwards to restore equilibrium in the economy and bring it back to full employment. This is based on the classical assumption of flexible prices and wages, which allows markets to adjust and clear themselves without any need for government intervention.

Assuming an Inflationary Gap Exists, Classical Economists Believe That Flexible