-According to classical economics, if aggregate demand were at AD₂ and prices and wages were at P₁W₁: A) aggregate supply would shift to the left. B) prices and wages would fall from P₁W₁ to P₂W₂. C) aggregate demand would increase from AD₂ to AD₁. D) the economy would continually operate with unemployed resources.

Question

Quizplus · Accepted Answer

According to classical economics, if aggregate demand is lower than the potential output (full employment level), prices and wages will adjust downwards. This adjustment mechanism ensures that the economy returns to full employment, negating options A, C, and D which suggest shifts in aggregate supply or demand or continued unemployment.

-According to Classical Economics, If Aggregate Demand Were at AD2

-According to Classical Economics, If Aggregate Demand Were at AD₂