The new classical cycle theory predicts that an unexpected increase in aggregate demand ________ create a business cycle and an expected increase in aggregate demand ________ create a business cycle.
A) will; will
B) will; will not
C) will not; will
D) will not; will not

Question

Quizplus · Accepted Answer

The new classical cycle theory posits that only unexpected changes in aggregate demand can create business cycles, as expected changes are already anticipated by economic agents and thus have no effect on the real output.

The New Classical Cycle Theory Predicts That an Unexpected Increase