According to the new classical model, changes in aggregate demand change real GDP
A) only when the short-run aggregate supply curve is vertical.
B) all of the time.
C) only when the changes in aggregate demand are unexpected.
D) only when the changes in aggregate demand are expected.

Question

Quizplus · Accepted Answer

In the new classical model, changes in aggregate demand affect real GDP only when they are unexpected, as prices and wages are assumed to be flexible and adjust quickly to expected changes.

According to the New Classical Model, Changes in Aggregate Demand