The classical model of the price level is more accurate during low inflation than high inflation.

Question

Quizplus · Accepted Answer

The classical model of the price level, which posits a direct relationship between the money supply and the price level, assumes prices are flexible and markets clear quickly. It tends to be more accurate during periods of high inflation, where changes in the money supply have more immediate and noticeable effects on prices. During low inflation, other factors such as demand, productivity, and technological changes can have a more significant impact on the price level, making the classical model less accurate.

The Classical Model of the Price Level Is More Accurate