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According to the classical theory of money, what is the assumption about aggregate supply (AS)?
According to the classical theory of money, what is the assumption about aggregate supply (AS)?
- AS is variable and dependent on price levels.
- AS is flexible and can change with changes in prices and wages.
- AS is determined by aggregate demand (AD).
- AS is constant and illustrated through a vertical line, regardless of price levels. (correct)
What role does supply play in the classical theory of money?
What role does supply play in the classical theory of money?
- Supply has no significant role in determining equilibrium in the market.
- Supply generates money that drives demand, leading to market equilibrium. (correct)
- Supply creates its own demand, leading to equilibrium determined by the demand side.
- Supply has no influence on prices or wages in the market.
How does the classical theory explain changes in prices and wages?
How does the classical theory explain changes in prices and wages?
- Changes in prices and wages have no impact on aggregate supply.
- Changes in prices and wages are solely determined by market forces. (correct)
- Changes in prices and wages are solely determined by government policies.
- Changes in prices and wages are affected by changes in aggregate supply.
What happens when aggregate demand (AD) increases in the classical theory of money?
What happens when aggregate demand (AD) increases in the classical theory of money?
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What is the significance of the gap between Y1 & Y2 in the context of the classical theory of money?
What is the significance of the gap between Y1 & Y2 in the context of the classical theory of money?
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How does the classical theory explain the determination of equilibrium in the market?
How does the classical theory explain the determination of equilibrium in the market?
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