Answer to Question #95231 in Macroeconomics for Maryum

Question

How aggregate demand is determined in classical model?

Answer 1

The economists of the classical school proceeded from the fact that the long-term market system ensures the full use of resources in the economy. Moreover, the imbalances that sometimes arise are overcome as a result of automatic market self-regulation. Thanks to him, ultimately, the economy always achieves the volume of production corresponding to full employment. The aggregate supply curve in the classical model is vertical and fixed at the level of potential volume of production. A change in aggregate demand does not affect the real volume of production and employment, but only the change in prices results.