The Classical assumptions of the macroeconomy include each of the following except
A) wages and prices are fully flexible.
B) expectations are volatile and can take many forms.
C) the labor market is always in equilibrium with full employment.
D) shocks to aggregate demand will change the composition but not the level of GDP.

Question

Quizplus · Accepted Answer

Classical economics assumes that prices, including wages, are flexible and markets clear, meaning supply equals demand, ensuring full employment. It also posits that the economy is self-correcting through these price adjustments, and that aggregate demand changes only affect the composition, not the overall level, of GDP. The notion of volatile and various forms of expectations does not align with classical assumptions, which typically assume rational expectations.

The Classical Assumptions of the Macroeconomy Include Each of the Following