According to the new Keynesian approach, changes in the money supply will affect output
A)only if they are expected.
B)only if they are unexpected.
C)whether they are expected or unexpected.
D)only if they affect the price level.

Question

Quizplus · Accepted Answer

According to the new Keynesian approach, changes in the money supply will affect output whether they are expected or unexpected. This is because changes in the money supply affect interest rates, which then influence the spending and investment decisions of households and firms. The relationship between changes in the money supply and the price level is also important in determining the extent of the output response, but it is not the only determinant.

According to the New Keynesian Approach, Changes in the Money