Question

According to the Classical Model: a. the aggregate supply curve is horizontal. b. increases in the money supply lead to proportional increases in the price level but no change in real output c. increases in the money supply lead to proportional changes in output, but no change in the price level. d. we are all dead in the long run

Answer 1

The Correct Answer is B.

Step-by-step explanation:

The classical model is the model of the economy that determine the real variables for example Employment and the unemployment, real GDP, saving, consumption, investment, the wage rate and the real interest rate at the full employment.

The Classical model was the first attempt to explain:

• The national level of real GDP.
• Determinants of the price level.
• Consumption.
• Employment.
• Investment.
• Saving.

Answer 2

Answer: Option (b) is correct.

Step-by-step explanation:

Correct option: Increases in the money supply lead to proportional increases in the price level but no change in real output.

According to the classical model, if there is an increase in the money supply then as a result it will increase the price level by the proportionate amount but there will be no change in the real output.

This means that if the money supply increases by 10% then as a result price level also increases by 10% and this change doesn't impact the real output.