Which of the following statements is correct concerning the views of new Keynesians and new classicals concerning the short-run effects of an unexpected increase in aggregate demand?
A)New classical economists believe that unexpected increases in aggregate demand affect only prices.
B)New Keynesian economists believe that unexpected increases in aggregate demand affect only output.
C)Both new Keynesian and new classical economists believe that unexpected increases in aggregate demand affect only output.
D)Both new Keynesian and new classical economists believe that unexpected increases in aggregate demand affect both output and prices.

Question

Quizplus · Accepted Answer

Both new Keynesian and new classical economists believe that unexpected increases in aggregate demand affect both output and prices. The difference between the two views lies in the adjustment speed of prices and wages. New classicals believe that prices and wages adjust quickly, leading to no change in output in the short run, while new Keynesians believe that prices and wages adjust more slowly, leading to a positive effect on output in the short run.

Which of the Following Statements Is Correct Concerning the Views