Classical Theory of Money: Aggregate Supply

Play an AI-generated podcast conversation about this lesson

According to the classical theory of money, how is the aggregate supply (AS) represented?

As a vertical line indicating constant total outputs regardless of price levels (correct)

As a downward-sloping line indicating decreasing total outputs with increasing price levels

As a horizontal line indicating constant price levels regardless of total outputs

As an upward-sloping line indicating increasing total outputs with increasing price levels

What does the classical theory assume about the flexibility of prices and wages?

They are flexible only in the short run but not in the long run

They are completely flexible and can be determined by market forces (correct)

They are rigid and cannot be determined by market forces

They are completely inflexible and determined by government regulations

How does the classical theory explain the impact of changes in aggregate demand (AD) on prices and wages?

Changes in AD have no impact on prices and wages

Changes in AD only impact prices but not wages

Changes in AD can impact prices and wages without changing aggregate supply (AS) (correct)

Changes in AD can impact aggregate supply (AS) without impacting prices and wages

What is meant by 'there is no money illusion' according to the classical theory?

Changes in prices lead to corresponding changes in wages due to no money illusion Signup and view all the answers

In the classical theory, what is indicated by 'supply creates its own demand'?

The supply of goods generates its own demand for those goods Signup and view all the answers

According to the classical theory, how do changes in demand curve upward affect the level of output (real GDP)?

Changes in demand curve upward do not affect the level of output (real GDP) Signup and view all the answers

According to the classical theory, what happens to the aggregate supply (AS) when there is a change in the aggregate demand (AD)?

AS remains constant regardless of changes in AD Signup and view all the answers

How does the classical theory explain the impact of changes in prices on wages?

An increase in prices leads to an automatic increase in wages Signup and view all the answers

In the classical theory, what is the role of aggregate supply (AS) in determining the equilibrium point?

AS creates its own demand to reach equilibrium Signup and view all the answers

What is the effect of an upward shift in the demand curve on the level of output (real GDP) according to the classical theory?

The level of output remains unchanged due to the constant AS Signup and view all the answers

What happens when the aggregate demand (AD) shifts from AD1 to AD2 according to the classical theory?

Prices increase from P1 to P2 resulting in labor demanding higher wages Signup and view all the answers

How does the market correct itself according to the classical theory?

Market corrects itself by adjusting prices and wages Signup and view all the answers

Classical Theory of Money: Aggregate Supply

Podcast Beta

Questions and Answers

According to the classical theory of money, how is the aggregate supply (AS) represented?

What does the classical theory assume about the flexibility of prices and wages?

How does the classical theory explain the impact of changes in aggregate demand (AD) on prices and wages?

What is meant by 'there is no money illusion' according to the classical theory?

In the classical theory, what is indicated by 'supply creates its own demand'?

According to the classical theory, how do changes in demand curve upward affect the level of output (real GDP)?

According to the classical theory, what happens to the aggregate supply (AS) when there is a change in the aggregate demand (AD)?

How does the classical theory explain the impact of changes in prices on wages?

In the classical theory, what is the role of aggregate supply (AS) in determining the equilibrium point?

What is the effect of an upward shift in the demand curve on the level of output (real GDP) according to the classical theory?

What happens when the aggregate demand (AD) shifts from AD1 to AD2 according to the classical theory?

How does the market correct itself according to the classical theory?

More Quizzes Like This

Classical Theory of Money: Lecture Two

Money & Banking Lecture Two: Classical Theory of Money

Classical Theory of Inflation

Classical Theory of Crime

Upgrade to continue

Classical Theory of Money: Aggregate Supply

Podcast Beta

Questions and Answers

According to the classical theory of money, how is the aggregate supply (AS) represented?

What does the classical theory assume about the flexibility of prices and wages?

How does the classical theory explain the impact of changes in aggregate demand (AD) on prices and wages?

What is meant by 'there is no money illusion' according to the classical theory?

In the classical theory, what is indicated by 'supply creates its own demand'?

According to the classical theory, how do changes in demand curve upward affect the level of output (real GDP)?

According to the classical theory, what happens to the aggregate supply (AS) when there is a change in the aggregate demand (AD)?

How does the classical theory explain the impact of changes in prices on wages?

In the classical theory, what is the role of aggregate supply (AS) in determining the equilibrium point?

What is the effect of an upward shift in the demand curve on the level of output (real GDP) according to the classical theory?

What happens when the aggregate demand (AD) shifts from AD1 to AD2 according to the classical theory?

How does the market correct itself according to the classical theory?

More Quizzes Like This

Classical Theory of Money: Lecture Two

Money &amp; Banking Lecture Two: Classical Theory of Money

Classical Theory of Inflation

Classical Theory of Crime

Money & Banking Lecture Two: Classical Theory of Money