The classical approach to the economic system.

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Chapter 16.A, Problem 13SQ

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The classical approach to the economic system.

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According to classical economic theory, which of the following describes the potential long-run self-correction of the economy depicted in the graph above? a. Consumption will come out of its stagnation and shift AD to the right, bringing output back to full employment levels. b. Wage rates will increase, attracting labor back to full employment levels ans increasing output back to its natural rate. c. Long-run aggregate supply will shift left due to decreases in spending and restore long-run equilibrium. d. Nominal wages will decrease as the duration of unemployment extends, eventually shifting short-run aggregate supply to the right, bringing output back to its natural level. e. Economies do not self-correct.

Which of the following is a belief of classical theory? A. Long-run full employment B. Inflexible wages C. Inflexible prices D. All of the above answers are correct

According to classical macroeconomic theory, a. the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process. b. for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money. c. output is determined by the supplies of capital and labor and the available production technology. d. All of the above are correct.