Expansionary policy only leads to inflation,but does not raise output in ________.
A)traditional Keynesian theory
B)new Keynesian theory
C)real business cycle theory
D)traditional Keynesian,new Keynesian and real business cycle theory

Question

Quizplus · Accepted Answer

In real business cycle theory, it is believed that economic fluctuations are primarily the result of real (in contrast to nominal) shocks. Therefore, expansionary policy, which is a nominal intervention, is seen as ineffective in affecting real output in the long term and is more likely to lead to inflation without raising output. Traditional Keynesian and New Keynesian theories, on the other hand, generally support the idea that expansionary policy can influence output, at least in the short to medium term.

Expansionary Policy Only Leads to Inflation,but Does Not Raise Output