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In the classical view, the price level is determined by
aggregate supply
aggregate demand and supply
supply of money
aggregate demand
- Option 1: Aggregate Supply
Classical economics sees aggregate supply as largely inelastic in the short run, focusing instead on factors like technology and resources in the long run.
- Option 2: Aggregate Demand and Supply
This view aligns more with Keynesian economics, where both demand and supply are key to determining price levels.
- Option 3: Supply of Money ??
Classical economists argue that price levels are primarily driven by the money supply. Changes in the money supply shift the price level directly, according to the Quantity Theory of Money.
- Option 4: Aggregate Demand
While it affects price levels, classical views suggest demand is not solely responsible for determining them.
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