According to new classical theory,if policy is correctly anticipated,expectations are formed rationally,and wages and prices are fully flexible,then an increase in aggregate demand will change Real GDP,but not the price level.

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According to new classical theory, if policy is correctly anticipated and expectations are formed rationally, an increase in aggregate demand will lead to an increase in both real GDP and the price level since wages and prices are not always fully flexible in the short run. This is known as the non-neutrality of money in the short run.

According to New Classical Theory,if Policy Is Correctly Anticipated,expectations Are