One assumption of the new classical model is that
A) money wage rates are rigid.
B) prices are "sticky" upward.
C) people make rational expectations about aggregate demand.
D) markets are not purely competitive.

Question

Quizplus · Accepted Answer

The assumption that people make rational expectations about aggregate demand is a key feature of the new classical model, which emphasizes the importance of individuals' beliefs and expectations in determining outcomes in the economy. This view contrasts with the Keynesian idea that people may have "animal spirits" and make decisions based on irrational factors. The other choices do not accurately reflect the assumptions of the new classical model.

One Assumption of the New Classical Model Is That