In new classical cycle theory, _______ bring fluctuations in real GDP around potential GDP.
A)unexpected changes in aggregate demand
B)expected changes in labour productivity
C)expected changes in aggregate demand
D)fluctuations in investment coupled with rigid wages
E)fluctuations in money growth with rigid wages

Question

Quizplus · Accepted Answer

According to new classical cycle theory, unexpected changes in aggregate demand, such as changes in consumer or business confidence, can cause fluctuations in real GDP around potential GDP. This is due to the assumption that markets are efficient and will eventually adjust to any shocks or changes, meaning that any expected changes in productivity or aggregate demand would already be accounted for in the market's expectations.

In New Classical Cycle Theory, _______ Bring Fluctuations in Real