According to Classical economists, how does the economy recover from an external shock?
A) Government policy can help to stabilize the economy.
B) The economy will restore itself automatically.
C) Another outside shock will counteract the first shock.
D) External shocks have no impact on an economy as large as the United States.

Question

Quizplus · Accepted Answer

According to classical economists, the economy will restore itself automatically after an external shock. This is because they believe in the self-correcting mechanism of the market, where prices and wages will adjust to bring the economy back to its natural state of equilibrium. Government intervention may disrupt this process and lead to inefficient outcomes. The idea of another outside shock counteracting the first shock is not a recognized mechanism for recovery in classical economics. The statement that external shocks have no impact on the economy is false.

According to Classical Economists, How Does the Economy Recover from an External