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 is always in equilibrium with full employment.
D) shocks to aggregate demand will change the composition and the level of GDP.

Question

Quizplus · Accepted Answer

Classical economic theory posits that the economy is self-regulating, with wages, prices, and labor markets adjusting to ensure full employment. It suggests that any shocks to aggregate demand would only affect the composition of GDP (what is produced) rather than its overall level, as the economy would quickly return to full employment through adjustments in prices and wages. Therefore, the statement that shocks to aggregate demand will change both the composition and the level of GDP does not align with classical assumptions, making it the correct exception.

The Classical Assumptions of the Macroeconomy Include Each of the Following