Refer to the information provided in Figure 32.2 below to answer the question(s) that follow. Figure 32.2
-Refer to Figure 32.2. According to ________ economists, under rational expectations an expected decrease in government spending would not change AD or AS.
A) Keynesian
B) the new classical
C) monetarist
D) none of the above

Question

Refer to the information provided in Figure 32.2 below to answer the question(s) that follow.  Figure 32.2
-Refer to Figure 32.2. According to ________ economists, under rational expectations an expected decrease in government spending would not change AD or AS.
A) Keynesian 
B) the new classical 
C) monetarist 
D) none of the above

Quizplus · Accepted Answer

The new classical economists believe in rational expectations, which means that individuals and firms form their expectations about future macroeconomic events based on all available information, including their understanding of how government policies affect the economy. Under rational expectations, an expected decrease in government spending would not change aggregate demand (AD) or aggregate supply (AS) because agents would anticipate the decrease and adjust their behavior accordingly. This is in contrast to Keynesian economists, who believe that changes in government spending can have a significant impact on AD and AS, and monetarist economists, who focus on the impact of changes in the money supply on AD and AS.

Refer to the Information Provided in Figure 32