The business cycle impulse in the new classical theory of the business cycle is
A) expected changes in aggregate demand.
B) fluctuations in investment coupled with rigid wages.
C) unexpected changes in aggregate demand.
D) fluctuations in money growth with rigid wages.

Question

Quizplus · Accepted Answer

According to the new classical theory of the business cycle, the business cycle impulse is due to unexpected changes in aggregate demand. This means that fluctuations in output, employment, and prices are the result of unanticipated shifts in the levels of consumption, investment, government expenditures, and net exports. The new classicals argue that firms and households make rational and forward-looking decisions, based on their expectations of future economic conditions. As a result, any change in aggregate demand that was expected would have already been incorporated into their decisions and would not cause fluctuations in the economy.

The Business Cycle Impulse in the New Classical Theory of the Business