In the classical model, high unemployment due to a change in aggregate demand
A) can persist for an indefinite period of time.
B) will return to its normal level quickly as wages adjust.
C) will persist if due to a supply shock but not if due to a demand shock.
D) never exists because unemployment can never deviate from its normal level.

Question

Quizplus · Accepted Answer

In the classical model, wages are flexible and will adjust to restore equilibrium in the labor market. Therefore, high unemployment due to a change in aggregate demand will only be temporary as wages adjust to the new level of demand in the economy.

In the Classical Model, High Unemployment Due to a Change