Suppose that the government implements expansionary fiscal policy that raises aggregate demand,but the policy is unanticipated.According to new classical theory,in the short run the price level would ____________ and Real GDP would ______________.In the long run,new classical theory would predict that the price level would ______________ compared to its original long-run equilibrium level and that Real GDP would ____________.

Question

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In the short run, an unanticipated expansionary fiscal policy would increase aggregate demand, leading to higher prices and higher real GDP. In the long run, according to new classical theory, prices would be higher compared to the original long-run equilibrium, but real GDP would return to its natural level, remaining unchanged from its long-run trend.

Suppose That the Government Implements Expansionary Fiscal Policy That Raises