Which of the following is a TRUE statement?
A) A decrease in aggregate demand was not possible according to the classical economists but was possible according to Keynes.
B) A decrease in aggregate demand has no short-run effects according to the classical economists but had significant effects according to Keynes.
C) Classical economists believed real GDP adjusted more than prices when aggregate demand fell, while Keynes argued that prices adjusted more than output.
D) Classical economists believed price adjusted more than output when aggregate demand fell, while Keynes argued real GDP adjusted more than prices.

Question

Quizplus · Accepted Answer

Classical economists believed that prices would adjust downwards to clear the market when aggregate demand fell, while Keynes argued that reducing output and employment was a more likely response. Therefore, classical economists believed that price adjusted more than output, while Keynes argued that real GDP adjusted more than prices.

Which of the Following Is a TRUE Statement