According to the new classical theory,__________ policy changes have no effect on real GDP and according to the new Keynesian theory,__________ policy changes have an effect on real GDP.
A) expected; expected
B) fiscal; monetary
C) fiscal; fiscal
D) unexpected; expected

Question

Quizplus · Accepted Answer

According to the new classical theory, expected policy changes have no effect on real GDP because people anticipate these changes and adjust their behavior accordingly. In contrast, the new Keynesian theory suggests that expected policy changes can affect real GDP due to price and wage rigidities.

According to the New Classical Theory,__________ Policy Changes Have No