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Figure: AD-AS
-(Figure: AD-AS) Look at the figure AD-AS. Suppose the economy starts at E₁ and moves to E₂, where AD₂intersects SRAS₁. Finally the economy moves to E₃. The classical model of price level assumes that the economy moves from _____; thus, inflation _____ and real GDP _____.

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Figure: AD-AS

-(Figure: AD-AS) Look at the figure AD-AS. Suppose the economy starts at E₁ and moves to E₂, where AD₂intersects SRAS₁. Finally the economy moves to E₃. The classical model of price level assumes that the economy moves from _____; thus, inflation _____ and real GDP _____.

Quizplus · Accepted Answer

According to the classical model of price level, the economy moves from E₁ to E₃, ignoring the point of intersection with SRAS at E₂. This would result in an increase in inflation and real GDP remaining the same.

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