A key difference between the classical perspective and the Keynesian aggregate expenditure model is that the classical perspective believes that ______ and the Keynesian perspective does not.
A) the short run is the time period that matters
B) countercyclical policies are needed
C) the economy self-corrects
D) prices are not flexible

Question

Quizplus · Accepted Answer

The classical perspective holds that the economy is self-correcting in the long run due to flexible prices and wages, which adjust to equilibrate supply and demand, thereby rendering countercyclical policies unnecessary. In contrast, the Keynesian perspective argues that due to sticky prices and wages, the economy may not self-correct in the short run, necessitating government intervention.

A Key Difference Between the Classical Perspective and the Keynesian