Question

Question 11 pts

It is _____ that in the classical model, prices and wages are fixed; it is _____ that according to the classical economists, full employment is the norm.

true; true

false; false

false; true

true; false

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Question 21 pts

According to classical macroeconomic theory, the flexible interest rate

causes investment to move in the opposite direction as savings.

will tend to fall when the quantity of credit demanded exceeds the quantity of credit supplied.

causes investment to move in the same direction as consumption.

ensures that saving cannot exceed investment spending for extended periods of time.

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Question 31 pts

Which of the following is true in the Classical model?

Fiscal policies do not change AD and therefore have no effect on the economy.

Monetary policies do not change AD and therefore have no effect on the economy.

Fiscal policies change AD and therefore affect national output.

Monetary policies change AD and therefore affect national output.

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Question 41 pts

Which of the following is not part of classical economic theory?

Investment depends upon the rate of interest.

Full employment is the norm in laissez-faire capitalism.

Wages and prices are inflexible downward.

The equilibrium interest rate causes savings to equal investment.

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Question 51 pts

In the long run of the Classical model:

the AS curve is horizontal set at the equilibrium price level.

the AS curve is vertical set at full employment output.

the AS curve is upward sloping with full employment in the middle.

the AD curve is horizontal set at the equilibrium price level.

Answer 1

Question 11

As per the Classical model, wages and prices are fully flexible.

Any disturbance in macroeconomic outcome leads to full adjustment in wages and prices in quick time as both are fully flexible and economy returns to full employment without any outside intervention.

So,

It is false that in the Classical model, prices and wages are fixed, it is true that according to the Classical economists, full employment is the norm.

Hence, the correct answer is the option (3).