Question

Which of the following is/are CORRECT according to the classical macroeconomic school?

• A. Long run aggregate supply curve is vertical.
• B. If long run aggregate supply curve is vertical, changes in aggregate demand affects prices but not output.
• C. If long run aggregate supply curve is vertical, changes in aggregate demand affects output but not prices.
• D. Vertical aggregate supply curve implies that output is independent of the money supply.

Hint:

In classical macroeconomics, the long-run aggregate supply curve is vertical, meaning output is independent of aggregate demand and the money supply in the long run.

Answer 1

The Correct Option is A, B, D

Step 1: Understand the classical macroeconomic view on aggregate supply.
According to the classical macroeconomic theory, the long-run aggregate supply (LRAS) curve is vertical because the economy’s potential output is determined by factors like technology, labor, and capital, which are unaffected by changes in aggregate demand.
Step 2: Analyze the options.
- Option (A) is correct because in the long run, the aggregate supply curve is vertical at the natural level of output.
- Option (B) is correct because if the LRAS is vertical, changes in aggregate demand only affect prices in the long run, not output.
- Option (C) is incorrect because in the classical model, output is not affected by changes in aggregate demand in the long run.
- Option (D) is correct because a vertical LRAS implies that output is independent of the money supply, as the money supply only affects prices in the long run.
Final Answer: \[ \boxed{\text{(A), (B), and (D) are correct according to the classical macroeconomic school.}} \]