The policy ineffectiveness proposition of the new classical model suggests that ________.
A)unanticipated policy has no effect on the business cycle
B)anticipated policy can have an effect on the business cycle
C)anticipated policy has no effect on the business cycle
D)legislative policy initiatives have little effect if the executive branch of government is in the hands of another political party

Question

Quizplus · Accepted Answer

According to the policy ineffectiveness proposition of the new classical model, anticipated policy has no effect on the business cycle. This is because people have rational expectations and adjust their behavior accordingly, nullifying any government attempts to manipulate the economy through policy. However, unanticipated policy shocks can still have a short-term impact on the economy. Therefore, option A is incorrect. Option B is partially correct, but it oversimplifies the proposition. Finally, option D is irrelevant to the question and can be eliminated.

The Policy Ineffectiveness Proposition of the New Classical Model Suggests