The classical model assumes that
A) imperfect competition predominates in most markets.
B) people have money illusion.
C) wages and prices are flexible.
D) wages are flexible but prices are not.

Question

Quizplus · Accepted Answer

The classical model assumes that wages and prices are flexible. This means that they can adjust quickly to changes in supply and demand, ensuring that markets clear and the economy operates at full employment. It also implies that there is no persistent unemployment or inflation in the long run. The other choices are incorrect because the classical model assumes perfect competition rather than imperfect competition (A), and does not necessarily assume money illusion (B) or that wages are more flexible than prices (D).

The Classical Model Assumes That