According to classical theory, if the aggregate demand curve decreased and the economy experienced unemployment, then:
A) the economy would remain in this condition indefinitely.
B) the government must increase spending to restore full employment.
C) prices and wages would fall quickly to restore full employment.
D) the supply of money would increase until the economy returned to full employment.

Question

Quizplus · Accepted Answer

According to classical theory, a decrease in aggregate demand would result in a surplus of goods and services, leading to falling prices and wages. As prices and wages fall, firms become more competitive and can hire more workers, eventually restoring full employment. Therefore, option C is the correct answer.

According to Classical Theory, If the Aggregate Demand Curve Decreased