An anticipated increase in the money supply has no effect on aggregate output in the ________ model.
A)new Keynesian
B)Keynesian
C)new classical
D)traditional

Question

Quizplus · Accepted Answer

In the new classical model, prices and wages are fully flexible, and the economy is always at its natural level of output in the long-run. Therefore, any increase in the money supply will only lead to an increase in prices, not output. In contrast, both the Keynesian and new Keynesian models suggest that an increase in the money supply can have a positive effect on output in the short-run by stimulating aggregate demand. The traditional model is not a widely recognized economic model.

An Anticipated Increase in the Money Supply Has No Effect