-In the new classical model in the figure above, the long-run effect of an unanticipated monetary expansion ________. A) increases output from Y_n to Y₂, and the inflation rate from P₁ to P₂ B) decreases output from Y_n to Y₄, and the inflation rate from P₃ to P₄ C) does not change output and increases the inflation rate from P₁ to P₃ D) does not change output and decreases the inflation rate from P₃ to P₁

Question

Quizplus · Accepted Answer

In the new classical model, the long-run effect of an unanticipated monetary expansion does not change the output due to the economy's return to its natural level of output, but it increases the inflation rate as prices adjust to the increased money supply.

-In the New Classical Model in the Figure Above, the Long-Run