Refer to Figure 17.3. Suppose the economy is at Point C. According to the new classical theory, an anticipated decrease in aggregate demand
A) moves the economy to Point A.
B) moves the economy to Point B.
C) leaves the economy at Point C.
D) moves the economy to Point D.

Question

Quizplus · Accepted Answer

According to the new classical theory, an anticipated decrease in aggregate demand will lead to a decrease in the price level and output, moving the economy from Point C to Point A, where the economy is at a lower level of output and price.