Those who hold the classical view of the labor market are likely to believe that ?
Correct answer: A. neither monetary nor fiscal policy will have an effect on output and employment
- A. neither monetary nor fiscal policy will have an effect on output and employment
- B. monetary but not fiscal policy will have an effect on output and employment
- C. Fiscal, but not monetary policy will have an effect on output and employment
- D. both monetary and fiscal policy will have an effect on output and employment
Explanation
In the classical model, flexible wages and prices restore full employment, so changes in monetary or fiscal policy mainly affect prices rather than real output and employment. This is the classical policy-neutrality position.
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