Which theory distinguishes between expected and unexpected fluctuations in aggregate demand and asserts that only unexpected changes can affect real GDP?
A) new classical cycle theory
B) Keynesian cycle theory
C) monetarist cycle theory
D) real business cycle theory

Question

Quizplus · Accepted Answer

The new classical cycle theory distinguishes between expected and unexpected fluctuations in aggregate demand and asserts that only unexpected changes can affect real GDP. This is because in the long run, prices and wages adjust to expected changes in aggregate demand, meaning that the economy returns to its potential output level.

Which Theory Distinguishes Between Expected and Unexpected Fluctuations in Aggregate