According to the new classical theory, economic policies are effective
A) only if they are unanticipated.
B) only if they are anticipated.
C) only if they are formed with rational expectations.
D) only if they are expansionary in nature.

Question

Quizplus · Accepted Answer

According to the new classical theory, economic policies, particularly monetary policies, are effective only if they are unanticipated. This is because individuals and businesses make decisions based on rational expectations, and if a policy change is anticipated, they will adjust their behavior in advance, neutralizing the policy's intended effects.

According to the New Classical Theory, Economic Policies Are Effective