A ________ macroeconomist believes that business cycle fluctuations are the efficient responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of technological change. A ________ macroeconomist believes that the short-run aggregate supply curve is horizontal at a fixed price level.
A)new classical; monetarist
B)classical; monetarist
C)Keynesian; new Keynesian
D)new classical; new Keynesian
E)monetarist; new classical

Question

Quizplus · Accepted Answer

A new classical macroeconomist believes that markets are efficient and respond well to shocks, while a new Keynesian believes that prices and wages are rigid in the short-run, leading to market inefficiencies. Moreover, a new classical macroeconomist would argue that the short-run aggregate supply curve is upward sloping, as prices and wages adjust quickly to changes in demand and supply. Conversely, a new Keynesian believes that the short-run aggregate supply curve is horizontal, as prices and wages are sticky in the short-run, and do not fully adjust to changes in demand and supply. Thus, the best option is D, which distinguishes between new classical and new Keynesian macroeconomics.

A ________ Macroeconomist Believes That Business Cycle Fluctuations Are the Efficient