The reason for different effects of an anticipated fiscal policy on the full-employment output in the Keynesian and Classical models is
A)the Keynesian model assumes perfect insight,but the Classical model assumes rational expectations.
B)the Keynesian model assumes rational expectations,but the Classical model assumes perfect insight.
C)the Keynesian model assumes perfect insight,but the Classical model assumes rational
D)contrary to the Classical model,the Keynesian model assumes that policy has no wealth effect.

Question

Quizplus · Accepted Answer

In the Keynesian model, fiscal policy can affect output because it assumes that prices and wages are sticky, and there is no immediate wealth effect. In contrast, the Classical model assumes flexible prices and wages, and fiscal policy does not affect full-employment output due to the wealth effect and rational expectations.

The Reason for Different Effects of an Anticipated Fiscal Policy