Figure 7-4

-According to the classical economists when output Y rises above the natural rate of employment,wages and prices would
A)fall causing output to rise;unemployment would be permanent.
B)rise causing output to rise;increased employment would be temporary.
C)rise causing output to fall;increased employment would be temporary.
D)fall causing output to fall;unemployment would be temporary.

Question

Figure 7-4
 
-According to the classical economists when output Y rises above the natural rate of employment,wages and prices would
A)fall causing output to rise;unemployment would be permanent. 
B)rise causing output to rise;increased employment would be temporary. 
C)rise causing output to fall;increased employment would be temporary. 
D)fall causing output to fall;unemployment would be temporary.

Quizplus · Accepted Answer

According to classical economists, when output Y rises above the natural rate of employment, wages and prices would rise causing output to fall, and increased employment would be temporary. This is known as the classical theory of the business cycle where market forces and adjustments would eventually lead the economy back to full employment in the long run. Option A, B, and D are incorrect because they do not align with the classical theory.

Figure 7-4 -According to the Classical Economists When Output Y Rises Above