Why is wage and price flexibility an important assumption of the classical model?
A) Flexible wages and prices guarantee that there will be no scarcity.
B) Flexible wages and prices allow business firms to fool their workers through the money illusion.
C) Flexible wages and prices allow business firms to fool their customers through the money illusion.
D) Flexible wages and prices allow markets to reach equilibrium.

Question

Quizplus · Accepted Answer

Wage and price flexibility allow markets to adjust to changes in supply and demand, ensuring that markets can reach equilibrium. This is an important assumption of the classical model, which assumes that markets always clear and that the economy will always return to full employment in the long run. Without flexible wages and prices, markets would be unable to adjust to changes in supply and demand, leading to persistent shortages or surpluses of goods and services.

Why Is Wage and Price Flexibility an Important Assumption of the Classical