AP Macroeconomics 3.4: Classical Self-Correction

Explain why classical economists expect flexible wages and prices to restore full employment.

[Maximum number: 1]

Classical economists believe that the economy moves toward full employment because

A

government spending supplements private investment to keep aggregate demand in balance with aggregate supply

B

households spend all of their disposable income to purchase the full-employment output

C

wages and prices are flexible

D

private investment is constant and independent of national income

E

the money supply grows at a constant rate to generate sufficient demand to purchase the full-employment output

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MOD-2.E—Define (using graphs as appropriate) the short run and the long run question 1