In the classical model, a change in aggregate demand
A) causes a change in long-run real GDP but not in the price level.
B) causes a change in the price level but not in the long-run real GDP.
C) causes changes in both the long-run real GDP and in the price level.
D) has no effect on either real GDP or the price level.

Question

Quizplus · Accepted Answer

In the classical model, the economy's long-run aggregate supply curve is vertical, meaning that changes in aggregate demand only affect the price level in the long run, but not the quantity of output. Therefore, a change in aggregate demand causes a change in the price level but not in the long-run real GDP.

In the Classical Model, a Change in Aggregate Demand