Suppose that the Federal Reserve announces a 50 basis point decrease in the target for the federal funds rate that was completely anticipated.According to the new classical model and with everything else held constant,this action by the Federal Reserve will cause real GDP to ________.
A)increase
B)decrease
C)remain constant
D)either increase,decrease or remain constant

Question

Quizplus · Accepted Answer

According to the new classical model, changes in the monetary policy do not affect real variables like real GDP in the long run. Hence, the announcement of a 50 basis point decrease in the target for the federal funds rate will not have any effect on real GDP, and it will remain constant.

Suppose That the Federal Reserve Announces a 50 Basis Point