Exhibit 16-1

-Refer to Exhibit 16-1.According to new classical macroeconomists,if decreases in aggregate demand are unanticipated,then the economy will move from point C to

Question

Exhibit 16-1
 
-Refer to Exhibit 16-1.According to new classical macroeconomists,if decreases in aggregate demand are unanticipated,then the economy will move from point C to

Quizplus · Accepted Answer

According to new classical macroeconomists, unanticipated decreases in aggregate demand will result in a short-run equilibrium point below the original point C, somewhere along the SRPC (Short-Run Phillips Curve) . This is because workers will not immediately adjust their expectations of future prices downward, resulting in an upward shift in the short-run aggregate supply curve (SRAS) and a movement to a lower level of output and higher price level in the short run. Eventually, however, workers will adjust their expectations and the economy will return to long-run equilibrium at point A.

Exhibit 16-1 -Refer to Exhibit 16-1.According to New Classical Macroeconomists,if Decreases in Classical