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1. In the Classical Model individuals only hold cash in order to satisfy the transactions demand...

1. In the Classical Model individuals only hold cash in order to satisfy the transactions demand for money. Explain. What does this imply as far as the market for goods and services is concerned?

2. With fully flexible wages, prices and interest rates the economy always settles at the full employment level of GDP. Explain.

3. What form of unemployment is consistent with the Classical Model?

4. Provide a brief explanation of the Quantity Theory of Money.

5. Why is monetary policy ineffective to combat recession in the world of the Classical Model?

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