Question

The main difference between the classical model of the price level and the modern understanding of the relationship between the money supply, the price level, and real GDP is that according to classical economists, _____, while today's economists _____

Answer 1

Answer:

D.  classical economists the adjustment of prices to changes in the money supply is  instantaneous, while economists today argue that this adjustment process takes  some time.

Explanation:

The difference between the classical and modern understanding of the price level is highlighted in the Classical and Keynesian theories. The Classical model assumes that the economy moves towards full employment and is self-adjusting. It also stipulates that prices and wages are flexible based on the demands at the present time. So it simply explains changes in the short-run which automatically resolve themselves without requiring and external help from the government or any other source.

The Keynesian model was developed after the Great Depression when there was massive unemployment. It holds that the economic output reflected in the real GDP, as well as price level, can remain below its optimum potential for a long period of time, thus requiring external factors to stabilize them. Therefore, the adjustment process takes some time to be fully resolved.