Which of the following is true of the new classical view of stabilization policy?
A)It is necessary, but it should not be overused.
B)It is necessary during recessions but not during booms.
C)It is unnecessary because households and firms make use of all available information in forming expectations of the price level.
D)It has been very successful in the period since the Great Depression.

Question

Quizplus · Accepted Answer

The new classical view of stabilization policy argues that it is unnecessary since households and firms have rational expectations and make use of all available information in forming expectations of the price level. Therefore, any attempt to stabilize the economy through policy actions would be futile as economic agents would already adjust their behaviors accordingly.

Which of the Following Is True of the New Classical