Which of the following is NOT an assumption of the classical model?
A) Wages and prices are flexible.
B) Inflation will lead to money illusion.
C) People are motivated by self-interest.
D) Pure competition exists.

Question

Quizplus · Accepted Answer

The classical model assumes that people have rational expectations and will not be deceived by inflation. Money illusion is a violation of the assumption of rational expectations, and therefore, it is not included in the classical model.

Which of the Following Is NOT an Assumption of the Classical