Classical Theory of Money and Aggregate Supply

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)

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.

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.

<p>It makes some changes in prices and wages without affecting aggregate supply.</p> Signup and view all the answers

<p>It indicates an inflationary gap caused by a decrease in prices.</p> Signup and view all the answers

<p>The market will correct itself towards full employment level based on changes in aggregate supply (AS).</p> Signup and view all the answers