The classical model does not do a good job of explaining short-run fluctuations in the level of economic activity.

Question

Quizplus · Accepted Answer

The classical model assumes that prices and wages are flexible, and markets clear quickly, resulting in full employment in the long run. However, it does not account for short-run fluctuations, such as business cycles, that can be caused by various factors such as changes in consumer spending, government policy, and external shocks. Therefore, the classical model is not suitable for analyzing short-term economic fluctuations.

The Classical Model Does Not Do a Good Job of Explaining