The Classical assumptions of the macroeconomy include each of the following except
A) wages and prices are fully flexible.
B) expectations are consistent with full employment.
C) the labor market can be out of equilibrium causing involuntary employment.
D) shocks to aggregate demand will change the composition but not the level of GDP.

Question

Quizplus · Accepted Answer

The classical assumptions of the macroeconomy posit that the labor market is always in equilibrium, which ensures full employment. Therefore, the idea that the labor market can be out of equilibrium causing involuntary unemployment (option C) is not consistent with classical economic theory. Classical economists believe in the flexibility of wages and prices, that expectations align with full employment, and that changes in aggregate demand affect the composition, not the overall level, of GDP.

The Classical Assumptions of the Macroeconomy Include Each of the Following