The correct option which specifies the difference between classical model of
Answer to Problem 4MCQ
From the available options, the correct option is the classical model assumes a vertical short-run
Explanation of Solution
The classical model of the price level specifies that since the aggregate supply curve is vertical in short-run, changes in the money supply only impact the overall level of prices. It means classical assumes that there is a vertical short-run aggregate supply curve and this model cannot assume an upward slope but the aggregate
Therefore, the correct option is a (the classical model assumes a vertical short-run aggregate supply curve) and all other options are incorrect as the supply curve in classical model can be vertical but in Keynesian model it would not be vertical which is the main difference between these models.
Introduction: The classical model of price indicates that economy is flowing freely and prices can be adjusted according to the ups and downs in the economy such as in good economic condition, prices will go up.
According to Keynesian economics, the rigidity in levels of price can fluctuate other components such as spending, investment, consumption by affecting the output level.
Chapter 35 Solutions
Krugman's Economics For The Ap® Course
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