Which one of the following statements is TRUE?
A) The classical model cannot explain periods of prolonged unemployment.
B) The Keynesian model cannot explain periods of prolonged unemployment.
C) The Keynesian model assumes complete flexibility of wages and prices.
D) The Keynesian model shows that the level of real GDP is supply-determined.

Question

Quizplus · Accepted Answer

The classical model assumes that markets will always clear, meaning that any excess supply or demand will be quickly eliminated through adjustments in prices and wages. Therefore, it cannot explain periods of prolonged unemployment because, according to the classical model, unemployment is always voluntary and caused by workers choosing not to work at prevailing wage rates.

Which One of the Following Statements Is TRUE