Both new Keynesian and new classical cycle theories claim that .
A) shifts in the SAS curve are the main impulse for a business cycle
B) expected changes in the quantity of money can trigger a business cycle
C) unexpected changes in aggregate demand trigger a business cycle
D) animal spirits can trigger a business cycle

Question

Quizplus · Accepted Answer

Both new Keynesian and new classical cycle theories agree that unexpected changes in aggregate demand are the main cause of business cycles, leading to fluctuations in output, employment, and prices. They differ, however, in their assumptions about the rigidity of prices and wages and the role of government policy in stabilizing the economy. New Keynesians argue that prices and wages are sticky in the short run, and that monetary and fiscal policy can be effective in smoothing out fluctuations. New classicals, on the other hand, assume that prices and wages are flexible and that individuals have rational expectations, meaning that they anticipate policy changes and adjust their behavior accordingly. Consequently, new classicals favor a laissez-faire approach and argue that government intervention can be counterproductive.

Both New Keynesian and New Classical Cycle Theories Claim That