In the view of the Classical economists, rising aggregate demand leads to
A) lower unemployment.
B) inflation.
C) higher unemployment.
D) deflation.

Question

Quizplus · Accepted Answer

According to Classical economists, long-run aggregate supply is perfectly inelastic, which means that an increase in aggregate demand will only lead to higher prices and not an increase in output. This is known as the quantity theory of money, which argues that an increase in the money supply leads to an increase in prices. Therefore, rising aggregate demand leads to inflation as prices increase without a corresponding increase in output.

In the View of the Classical Economists, Rising Aggregate Demand