The Classical economists believed in the self-correcting nature of the economic system.They believed that the major adjustment
A)mechanisms was government assistance
B)mechanisms were inflexible wages and prices and flexible interest rates
C)mechanisms were flexible wages,prices and interest rates
D)mechanisms were sticky wages,prices and interest rates
E)mechanisms were inflexible interest rates and flexible wages and prices

Question

Quizplus · Accepted Answer

The Classical economists believed that the economy is self-correcting and that the market forces of supply and demand will ensure that the economy returns to equilibrium. They believed that the major adjustment mechanisms were flexible wages, prices, and interest rates. This means that wages and prices can adjust quickly to changes in supply and demand, and interest rates can be adjusted by the central banks to stabilize the economy. Sticky wages and prices (choice D) would hinder the adjustment process and inflexible interest rates (choice E) would limit the ability of the central banks to stabilize the economy. Government assistance (choice A) was not seen as a major adjustment mechanism by the Classical economists.

The Classical Economists Believed in the Self-Correcting Nature of the Economic