Classical economists believe:

a. increases in the money supply will increase output.

b. that inflation is caused by contractionary fiscal policy.

c. prices are flexible.

d. fiscal policy changes are best at controlling the business cycle.

e. that the long-run aggregate supply curve is vertical, but the short-run aggregate supply curve is horizontal.

Question

Krystan

Social Studies

3 April, 15:46

Classical economists believe:

a. increases in the money supply will increase output.

b. that inflation is caused by contractionary fiscal policy.

c. prices are flexible.

d. fiscal policy changes are best at controlling the business cycle.

e. that the long-run aggregate supply curve is vertical, but the short-run aggregate supply curve is horizontal.

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Answers (1)

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Paula Peterson · Answer 1

Classical economists believe that the long-run aggregate supply curve is vertical, but the short-run aggregate supply curve is horizontal.

Explanation:

Classical economists believe that the economy can self-regulate and achieve balance naturally. It is believed that economic stimulation that affects the GDP or the output depends on the full resources utilization.

When it comes to long-run aggregate supply (LRAS), the factors that affect the GDP are the level of investment, the productivity of labour and level of capital. LRAS curve is vertical and SRAS is horizontal. SRAS is affected by under using of resources such as increasing labour without increasing capital.