In the new classical model,all wages and prices ________.
A)are completely flexible with respect to expected changes in the price level
B)are fixed with respect to expected changes in the price level
C)are flexible with respect to the value of the dollar
D)are fixed with respect to the money supply

Question

Quizplus · Accepted Answer

In the new classical model, all wages and prices are completely flexible with respect to expected changes in the price level. This means that if there is an expected increase in the price level, firms and workers will adjust their prices and wages accordingly, rather than waiting for the actual increase to occur. This assumption is based on the idea of rational expectations, where individuals use all available information to make decisions about prices and wages.

In the New Classical Model,all Wages and Prices ________