Answer to Question #268190 in Macroeconomics for Anonymous

Question

Why aggregate demand is determined by money supply in classical model????

Answer 1

In classical model, aggregate demand is predetermined by money supply, that is the amount of money and their purchasing power. This is due to the reason that aggregate demand is a measurement of the total amount of demand for all finished goods and services produced in an economy. Aggregate demand is expressed as the total amount of money exchanged for those goods and services at a specific price level and point in time.