In the current debate over economic policy,the new classical macroeconomists argue that
A) the economy is at a full-employment equilibrium when money demand equals aggregate demand.
B) fiscal policy is effective in stabilizing the economy.
C) prices are upwardly flexible.
D) economic instability results primarily from the spending behavior of the private sector.
E) discretionary monetary and fiscal policies are ineffective in eliminating recessionary and inflationary gaps and may even promote instability.

Question

Quizplus · Accepted Answer

The new classical macroeconomists argue that discretionary monetary and fiscal policies are ineffective in eliminating recessionary and inflationary gaps and may even promote instability. They believe that prices are upwardly flexible and that the economy is at a full-employment equilibrium when money demand equals aggregate demand. They also argue that economic instability results primarily from the spending behavior of the private sector, rather than from external shocks or government intervention. Therefore, the best choice is E.

In the Current Debate Over Economic Policy,the New Classical Macroeconomists