The new classical macroeconomists stress that output fluctuations and unemployment
A) result from random errors and cannot be minimized by government stabilization policies.
B) require rational government actions to reduce the gap between actual and potential output.
C) will disappear if most large industries are nationalized.
D) are absent in a free market capitalist economy.
E) can be minimized if all sectors of the economy rationally expect high rates of inflation.

Question

Quizplus · Accepted Answer

New classical macroeconomists argue that output fluctuations and unemployment are often the result of random shocks to the economy, such as technological changes or supply shocks, and that individuals' expectations adjust to these shocks. They believe that government stabilization policies are ineffective because people's expectations adjust to anticipate these policies, rendering them neutral in their effect on the economy.

The New Classical Macroeconomists Stress That Output Fluctuations and Unemployment