Followers of the new classical approach believe that for stabilization policies to be effective they must
A)be unexpected.
B)be announced before they are implemented.
C)take the form of monetary policy.
D)take the form of fiscal policy.

Question

Quizplus · Accepted Answer

Followers of the new classical approach believe in the concept of rational expectations, meaning that individuals will adjust their behavior based on their expectations of future events. Therefore, if stabilization policies are announced before they are implemented, individuals will anticipate their effects and adjust their behavior accordingly, negating the desired effects. Unexpected policies, on the other hand, can potentially have a greater impact, as individuals have not had the chance to adjust their behavior.

Followers of the New Classical Approach Believe That for Stabilization