In the classical model, a shift to the right in aggregate demand would result in
A) a permanent increase in unemployment.
B) a permanent increase in real incomes.
C) an increase in the price level.
D) a permanent shift past full employment.

Question

Quizplus · Accepted Answer

In the classical model, a shift to the right in aggregate demand would result in an increase in the price level. This is because the quantity of output supplied in the short run is fixed, so an increase in demand leads to an increase in prices. The other choices are incorrect as classical economists believe in the long-run natural rate of unemployment, and any shift beyond full employment is not possible. Additionally, real incomes may temporarily increase due to a short-term increase in demand, but in the long run, they are determined by productivity and technology.

In the Classical Model, a Shift to the Right in Aggregate