According to the new classical theory, ________ policy changes have no effect on real GDP and according to the new Keynesian theory, ________ policy changes have an effect on real GDP.
A) expected; expected
B) unexpected; expected
C) fiscal; monetary
D) fiscal; fiscal

Question

Quizplus · Accepted Answer

According to the new classical theory, expected policy changes are anticipated by individuals and firms, leading them to adjust their behavior accordingly, resulting in no effect on real GDP. In contrast, the new Keynesian theory posits that expected policy changes can affect real GDP due to price and wage rigidities.

According to the New Classical Theory, ________ Policy Changes Have