Full employment in the classical model is maintained by
A) flexible interest rates.
B) flexible wage rates.
C) flexible prices.
D) flexible income.

Question

Quizplus · Accepted Answer

According to the classical model, flexible wage rates ensure that labor demand and supply are always in balance, allowing the economy to achieve full employment. This means that as labor demand increases, wages will rise, incentivizing more individuals to enter the labor force, preventing any excess of labor supply over labor demand, and maintaining full employment. Flexible interest rates may stabilize the economy but are not necessary for achieving full employment in the classical model. Flexible prices may also help stabilize the economy but are not sufficient to maintain full employment. Flexible income is not a factor in the classical model.

Full Employment in the Classical Model Is Maintained by