In the classical model, how do shifts in aggregate demand affect real GDP?
A) Real GDP will remain unchanged.
B) Increases in aggregate demand increase real GDP.
C) Increases in aggregate demand decrease real GDP.
D) Decreases in aggregate demand increase real GDP.

Question

Quizplus · Accepted Answer

In the classical model, it is assumed that the economy is always at full employment, and prices are flexible. Therefore, shifts in aggregate demand do not affect the real GDP, which remains constant because the economy self-adjusts through changes in prices rather than changes in output.

In the Classical Model, How Do Shifts in Aggregate Demand