Which of the following statements is true concerning the new Keynesian approach?
A)Only unexpected changes in the money supply affect output.
B)Only expected changes in the money supply affect output.
C)Unexpected changes in the money supply have a greater effect on output than do expected changes in the money supply.
D)Expected changes in the money supply have a greater effect on output than do unexpected changes in the money supply.

Question

Quizplus · Accepted Answer

The new Keynesian approach asserts that unexpected changes in the money supply have a greater effect on output than do expected changes. This is because when individuals and firms make decisions based on their expectations, they may already have adjusted their behavior according to anticipated changes, whereas unexpected changes can create greater uncertainty and may lead to more significant shifts in behavior.

Which of the Following Statements Is True Concerning the New