In the new classical model,an anticipated increase in the money stock will cause
A)the price level and aggregate output to increase.
B)aggregate output to increase.
C)the price level to increase.
D)no effect on either the price level or aggregate output.

Question

Quizplus · Accepted Answer

According to the new classical model, an anticipated increase in the money stock will be reflected in the long-run as a proportional increase in the price level. This is because, in the long-run, wages and prices are flexible, and any increase in the money stock will be reflected in a proportional increase in prices. There will be no effect on aggregate output as the increase in prices will not affect the underlying supply-side factors that determine the level of output in the economy.

In the New Classical Model,an Anticipated Increase in the Money