Both the new classical and new Keynesian business cycle theories agree that
A) expected changes in aggregate demand lead to the business cycle.
B) unexpected changes in aggregate demand cannot result in a business cycle.
C) the money wage rate is influenced by rational expectations of the price level.
D) the long-term nature of wage contracts allow expected changes in the price level to cause business cycles.

Question

Quizplus · Accepted Answer

Both new classical and new Keynesian theories incorporate the concept of rational expectations, which suggests that individuals use all available information, including expectations about future economic conditions, to make decisions. This includes their expectations about the price level influencing the money wage rate.

Both the New Classical and New Keynesian Business Cycle Theories