In the classical model, what is the result of an increase in aggregate demand?
A) Real GDP increases, and the price level remains constant.
B) Real GDP decreases, and the price level remains constant.
C) The price level increases, and real GDP remains constant.
D) The price level decreases, and real GDP remains constant.

Question

Quizplus · Accepted Answer

In the classical model, it is assumed that the economy is always at full employment, so an increase in aggregate demand leads to an increase in the price level while real GDP remains constant, as the economy's output is already at its maximum sustainable level.

In the Classical Model, What Is the Result of an Increase