In the new classical model, ________.
A) wages and prices are sticky with respect to expected changes in the price level
B) unanticipated policy has no effect on aggregate output and unemployment
C) an anticipated increase in the money supply will increase aggregate output temporarily
D) only unanticipated policy can affect aggregate output and unemployment

Question

Quizplus · Accepted Answer

In the new classical model, only unanticipated policy can affect aggregate output and unemployment because agents have rational expectations and will adjust their behavior in anticipation of policy changes, neutralizing their effects.

In the New Classical Model, ________