One important point on which new Keynesian and new classical economists are in agreement is
A)that only unexpected changes in policy can affect output.
B)the importance of policy credibility for determining the response of output to policy.
C)the irrelevance of policy as output changes are the result of technology shocks.
D)the inability of the assumption of rational expectations to explain the reactions of businesses and consumers to changes in policy.

Question

Quizplus · Accepted Answer

Both new Keynesian and new classical economists agree that policy credibility is crucial in determining the response of output to policy. They argue that if policy is not credible, economic agents will not believe it will be sustained and adjust their behavior accordingly, limiting the effectiveness of the policy in affecting output.

One Important Point on Which New Keynesian and New Classical