Question

In the Classical​ Model, an increase

in aggregate demand will result in
A.
a decrease

in both the price level and output.
B.
a decrease

in the price level and an increase

in output.
C.
an increase

in the price level and no change in output.
D.
an increase

in output and no change in the price level.
E.
an increase

in both the price level and output.

Answer 1

D. an increase in output and no change in the price level. In the Classical Model, output is fixed in the long run and determined by factors such as technology, capital stock, and labor supply. Therefore, an increase in aggregate demand will only result in an increase in output, with no effect on the price level.

Answer 2

no wrong answer

Answer 3

I apologize for the mistake. In the Classical Model, an increase in aggregate demand will not have an effect on output in the long run, as output is determined by factors such as technology and capital stock. However, it may have a temporary effect on output in the short run, depending on the level of resources available. The correct answer would be:

C. An increase in the price level and no change in output. In the long run, prices adjust to changes in aggregate demand and output remains constant at the full employment level.