The new classical macroeconomists conclude that
A) monetary and fiscal stabilization policies are most effective at countering supply-side shocks.
B) the short-run aggregate supply curve is unaffected by expected changes in the price level.
C) if firms and individuals formulate expectations rationally, they will frustrate activist government stabilization policy.
D) real output will increase as long as wage increases exceed price increases, thus stimulating aggregate demand.
E) firms and individuals can be counted on to make systematic errors in forecasting the future.

Question

Quizplus · Accepted Answer

New classical macroeconomists argue that rational expectations on the part of firms and individuals will cause them to adjust their behavior in response to anticipated policy changes, making such policies ineffective in achieving their intended goals.

The New Classical Macroeconomists Conclude That