Consider a closed economy. If the nominal wage is flexible and nominal money supply is increased, then which of the following will be true in equilibrium?
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2 marksMacroeconomicsClassical macroeconomicsClassical dichotomy, money neutrality and the Pigou effectModerateabout 3 min
DSE 2010 Question 21: Classical macroeconomics
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Classical macroeconomics has come up 35 times in 7 exams since 2008.
What this question tests
This question is on Classical dichotomy, money neutrality and the Pigou effect, part of Classical macroeconomics in Macroeconomics.
Why money affects only the price level in the classical model, and how falling prices could restore full employment.
TestStop has 14 past-paper questions on this subtopic.
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Question from the DSE 2010 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.