Discussion
According to classical models, the level of employment is primarily determined by .............
Answer: C
In classical models employment is determined by the Level of aggregate supply.
Classical economists held that the labour market clears at the real wage where labour demand equals labour supply, so the economy is at full employment. Employment and output are fixed by the supply side: technology, the capital stock and workers' willingness to work. Say's law ensures that this supply creates its own demand.
Making employment depend on the level of demand for goods and services is Keynes's theory of effective demand. Prices and interest rates adjust in the classical model to keep the economy at full employment; they are not what determines the level of employment.
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