New classical economists say that a fully anticipated increase in aggregate demand
A) shifts the long-run aggregate supply curve to the right.
B) shifts the long-run aggregate supply curve to the left.
C) moves the economy up along its vertical long-run aggregate supply curve.
D) eventually results in a self-correcting decrease in aggregate demand.

Question

Quizplus · Accepted Answer

New classical economists believe that in the long run, the economy will always return to its natural rate of output, regardless of changes in aggregate demand. Therefore, a fully anticipated increase in aggregate demand will only result in a temporary increase in output and prices, moving the economy up along its vertical long-run aggregate supply curve. Ultimately, output will return to the natural rate and prices will stay at their original level.

New Classical Economists Say That a Fully Anticipated Increase in Aggregate