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What is Classical Aggregate Supply and Interest Rates about?
The classical aggregate supply curve is vertical because it indicates that in the long run, potential output is not directly related to price levels, requiring higher money wages for higher price levels. Interest rates in classical theory are determined by factors such as aggregate demand, consumption, investment, and government spending, using a simplified model that does not consider all real-world influences. The equilibrium interest rate is found by plotting the supply and demand for loanable funds.
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- rohi24x7
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- EN