What did classical economists assume about the flexibility of prices and wages?
Classical economists assumed that wages and prices in an economy will be very flexible. This is one of the major pieces of the foundation of their whole model of a self-correcting economy. Because wages and prices are flexible, they say, the long-run aggregate supply curve will be vertical.
According to classical economics, prices and wages can and will change rapidly in reaction to any change in aggregate demand. Let us...
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