In new classical economics, the change in output caused by a "price-level surprise"
A) is shown as a shift of the long-run aggregate supply curve.
B) does not alter the rate of unemployment, even in the short run.
C) is soon reversed through a shift of the short-run aggregate supply curve.
D) permanently changes the rate of unemployment.

Question

Quizplus · Accepted Answer

Price-level surprises can temporarily affect output and employment due to sticky wages and prices. However, these effects are reversed as wages and prices adjust, shifting the short-run aggregate supply curve back to its original position, restoring the natural rate of unemployment and output levels.

In New Classical Economics, the Change in Output Caused by a "Price-Level