Classical analysis states that in the long run, aggregate supply is vertical and fixed at full employment, and changes in the money supply result directly in changes in the price level.

Question

Quizplus · Accepted Answer

This is a core aspect of classical economic theory, which suggests that in the long run, the economy will always return to its full employment level of output, and any changes in the money supply will simply result in changes in the price level. This is known as the quantity theory of money.

Classical Analysis States That in the Long Run, Aggregate Supply