According to classical theory,
A)Keynes had "neglected to take account of the drag on prosperity which can be exercised by an insufficiency of effective demand."
B)Macro equilibrium might start out badly and get worse in the absence of government intervention.
C)Flexible wages and prices allow a laissez faire economy to adjust wages and prices to shifts in aggregate demand.
D)Business cycles are not relevant and do not occur.

Question

Quizplus · Accepted Answer

According to classical theory, flexible wages and prices allow for the self-adjustment of the economy to changes in aggregate demand. This suggests a laissez faire approach with minimal government intervention. Keynesian theory, on the other hand, emphasizes the importance of government action to address inadequate aggregate demand and stabilize the economy. Choices A and B are more aligned with Keynesian theory, while choice D is too extreme and does not accurately reflect classical theory.

According to Classical Theory