What does the coefficient a in the new classical expression for short-run aggregate supply represent?
A)The full employment level of output
B)The price level in the previous period
C)How much output responds when the actual price level differs from the expected price level
D)How much the price level responds when the actual level of output differs from the full employment level of output

Question

Quizplus · Accepted Answer

The coefficient a in the new classical expression for short-run aggregate supply represents how much output responds when the actual price level differs from the expected price level. This is because the New Classical view assumes that any deviations from expected prices will lead to changes in output, as businesses respond to these price signals. The coefficient a captures the degree of this responsiveness, with higher values indicating greater sensitivity to price changes. Choices A and D refer to concepts in other macroeconomic models, while choice B is not directly related to the new classical model.

What Does the Coefficient a in the New Classical Expression