Classical economists believe that in the short run
A)money neutrality exists and prices adjust rapidly.
B)money neutrality does not exist and prices adjust rapidly.
C)money neutrality exists and prices do not adjust rapidly.
D)money neutrality does not exist and prices do not adjust rapidly.

Question

Quizplus · Accepted Answer

Classical economists assume that money neutrality exists in the short run, which means changes in the money supply do not affect real economic variables such as output, employment, and consumption, but only nominal variables such as prices and wages. Therefore, prices are expected to adjust rapidly to changes in the money supply, ensuring that the economy returns to its long-run equilibrium without any lasting effects on real variables.

Classical Economists Believe That in the Short Run