Question

Classical economists believe that the aggregate supply curve is vertical because

Select one:

a. the labor market is always in equilibrium.

b. wages are flexible and they always change to clear the labor market.

c. people who are not working are those who have chosen not to work at the prevailing wage rate.

d. all of the above.

Answer 1

Option D ( All the Above)

The Classical model believes that the aggregate supply curve is vertical because this model holds that the economy is at its full employment level. That means that even if demand increases, firms can't hire new workers and expand because everyone is already working. They also believed in wage-price flexibility. The flexibility of wages and prices would ensure automatic full employment. All the people who are not working are those who have chosen not to work at the prevailing wage rate.