Answer to Question #272368 in Macroeconomics for Saman Khalil

Question

Explain how aggregate demand is determined within the classical model. What

would be the effects on output and the price level of a drop in money supply?

Answer 1

in accordance to the classical model, aggregate demand is predetermined by money supply, that is the amount of money and their purchasing power.

Aggregate demand is an economic aggregate that can be defined as the real volume of national production that households, firms and the state are willing to buy at every possible price level.