Which of the following is a distinguishing characteristic of the neoclassical view? increasing price levels will increase the unemployment rate wages and real GDP are sticky over time wages are maintained at original equilibrium flexibility of wages and prices over time

flexibility of wages and prices over time

Explanation:

The neoclassical view posits that long-term expansion of potential Gross Domestic Products (GDP) due to economic growth will determine the size of a country's economy but the economy cannot sustain production above its potential Gross Domestic Products (GDP) in the long run.

A distinguishing characteristic of the neoclassical view is flexibility of wages and prices over time.

Question:

Which of the following is a distinguishing characteristic of the neoclassical view?

A. increasing price levels will increase the unemployment rate.

B. wages and real GDP are sticky over time.

C. wages are maintained at original equilibrium.

D. wages and prices will adjust in a flexible manner

The correct answer is D)  

Explanation:

The neoclassical view on macroeconomics states that, in the long run, the economy will oscillate around its potential GDP and its natural rate of unemployment.

The two building blocks of neoclassical economics are:

(1) potential GDP determines the economy’s size and

(2) wages and prices will adjust in a flexible manner so that the economy will adjust back to its potential GDP level of output. The key policy implication is this: The government should focus more on long-term growth and on controlling inflation than on worrying about recession or cyclical unemployment.

This focus on long-run growth rather than the short-run fluctuations in the business cycle means that neoclassical economics is more useful for long-run macroeconomic analysis and Keynesian economics is more useful for analyzing the macroeconomic short run.

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