Chapter 33, Problem 2MCQ

To determine

The correct option for the classical model of the price level.

Answer to Problem 2MCQ

From the available options, the correct option is both the short-run and long-run aggregate supply curves are vertical.

Explanation of Solution

The aggregate supply curves in the short-run, as well as long-run, would be vertical in the classical model of price level because any change in demand will result in increases or decreases in price but the total economic output would remain the same. Whereas in the short-run, the aggregate demand curve would slope downward from the left to the right as due to changes in price, there would be changes in the total economic output.

Moreover, in long run, the prices and quantity of output are also fully flexible which means in this time period, curves cannot be in vertical lines.

Therefore, the correct option is b (both the short-run and long-run aggregate supply curves are vertical) and all other options are incorrect.

Economics Concept Introduction

Introduction: The classical model of price indicates that the economy is flowing freely and prices can be adjusted according to the ups and downs in the economy such as in good economic conditions, prices will go up.