In the classical model, an increase in aggregate demand will cause
A) an increase in actual output, or Gross Domestic Product (GDP).
B) a decrease in actual output, or Gross Domestic Product (GDP).
C) an increase in price level.
D) a decrease in price level.

Question

Quizplus · Accepted Answer

In the classical model, it is assumed that the economy is always at full employment, so an increase in aggregate demand primarily causes an increase in the price level rather than a change in actual output.

In the Classical Model, an Increase in Aggregate Demand Will