Consider the following statement: "A consistent countercyclical policy has no effect on employment and output, since individuals will recognize those policies as systematic and will anticipate them correctly." This statement is most closely associated with
A) classical theory.
B) Keynesian theory.
C) new classical theory.
D) monetarist theory.

Question

Quizplus · Accepted Answer

The statement is associated with the new classical theory, which posits that individuals have rational expectations and will correctly anticipate government policy changes. Therefore, countercyclical policies will have no real effect on employment and output as individuals will adjust their behavior accordingly. Classical theory assumes that markets are self-correcting and that government intervention can actually create more problems, while Keynesian theory advocates for government intervention to stabilize the economy during downturns. Monetarist theory focuses on the role of money supply in the economy.

Consider the Following Statement: "A Consistent Countercyclical Policy Has No