In case of classical model, increase in aggregate expenditure would:
A)shift the aggregate demand curve upward leading to increase in real GDP and prices.
B)shift the aggregate demand curve downward leading to increase in real GDP and prices.
C)shift the aggregate demand curve upward leading to decrease in real GDP and prices.
D)shift the aggregate demand curve downward leading to decrease in real GDP and prices.
E)shift the aggregate demand curve upward leading to increase in prices and no change in real GDP.

Question

Quizplus · Accepted Answer

In the classical model, the economy is at full employment, so an increase in aggregate expenditure leads to higher prices but no change in real GDP.

In Case of Classical Model, Increase in Aggregate Expenditure Would