Refer to the information provided in Figure 17.2 below to answer the questions that follow. Figure 17.2 -Refer to Figure 17.2. According to the new classical economists, under rational expectations an expected decrease in government spending would A) shift AS₁ to the right. B) shift AD₁ to the right. C) shift AD₁ to the left. D) not change AD and AS.

Question

Quizplus · Accepted Answer

According to the new classical economists, under rational expectations, an expected decrease in government spending would not change the aggregate demand (AD) and aggregate supply (AS) curves because individuals and businesses would adjust their behaviors in anticipation of the policy change, offsetting its effect.

Refer to the Information Provided in Figure 17