The classical model is the appropriate model for analysis of the economy in the
A) long run, because evidence indicates that money is not neutral in the long run.
B) long run, because real and nominal variables are essentially determined separately in the long run.
C) short run, because money is neutral in the short run.
D) short run, because real and nominal variables are not highly intertwined in the short run.

Question

Quizplus · Accepted Answer

The classical model assumes that real and nominal variables are essentially determined separately in the long run, and that prices and wages are flexible, leading to full employment of resources. It is not appropriate for short-run analysis because it assumes that money is neutral in the long run.

The Classical Model Is the Appropriate Model for Analysis of the Economy