If the short-run aggregate supply curve is assumed to be horizontal and money demand is proportional to income,then the big,comprehensive model corresponds to which of the following special cases?
A) classical closed economy
B) aggregate demand and aggregate supply
C) IS-LM model
D) Mundell-Fleming with floating exchange rate

Question

Quizplus · Accepted Answer

The assumption of a horizontal short-run aggregate supply (SRAS) curve and proportional money demand to income corresponds to the basic assumptions of the aggregate demand and aggregate supply (AD-AS) model, which is a comprehensive macroeconomic framework that analyzes the interaction between aggregate demand (AD) and aggregate supply (AS) in determining overall macroeconomic outcomes such as inflation and output. The other options do not include these assumptions, and are either more specialized models (IS-LM, Mundell-Fleming) or classical frameworks (classical closed economy) that do not incorporate modern macroeconomic concepts such as short-run aggregate supply.

If the Short-Run Aggregate Supply Curve Is Assumed to Be