Which of the following is NOT a postulate of the Classical Model of full-employment equilibrium?
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IIT JAM 2022 Question 9: Classical macroeconomics
Answer and worked solution
Answer: (C)
The Classical model assumes wage and price flexibility, perfect information, and that the price level moves proportionately with the money stock (quantity theory). In the Classical system saving is a function of the interest rate, not of income.
Making consumption and saving depend on income is the Keynesian departure, so (C) is NOT a Classical postulate. The answer is (C).
The trap: (A) Wage-Price flexibility
Wage-price flexibility is a core Classical assumption, so (A) is a genuine postulate and not the exception the question asks for.
Classical macroeconomics has come up 35 times in 7 exams since 2008.
What this question tests
This question is on Say's law and loanable funds, part of Classical macroeconomics in Macroeconomics.
The classical claim that supply creates its own demand and that the interest rate balances saving and investment.
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Question from the IIT JAM 2022 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.