If the economy diverges from its full-employment output, new classical economics would suggest that:
A) A change in the velocity of money would be all that is needed to return it to its full-employment output
B) An improvement in insider-outsider relationships is all that is needed to return it to its full-employment output
C) An efficiency wage in the economy would return it to its full-employment output
D) Internal mechanisms within the economy would automatically return it to its full-employment output

Question

Quizplus · Accepted Answer

New classical economics suggests that internal mechanisms within the economy, such as the price mechanism and the self-correcting nature of markets, would automatically return the economy to its full-employment output in the long run. This is because new classical economists believe that markets are perfectly efficient and rational, and that any short-term deviations from full employment are caused by external shocks or disturbances that will eventually be resolved by market forces. Therefore, they do not advocate for government intervention or any specific policy measures to address such deviations.

If the Economy Diverges from Its Full-Employment Output, New Classical