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 the ________ economists, under rational expectations an expected decrease in taxes 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 the ________ economists, under rational expectations an expected decrease in taxes would not change AD or AS.
A) Keynesian 
B) the new classical 
C) monetarist 
D) none of the above

Quizplus · Accepted Answer

According to the new classical economists, rational expectations imply that individuals will take into account the expected changes in taxes and adjust their behavior accordingly, resulting in no change in aggregate demand or aggregate supply. This is because any anticipated increase in disposable income from lower taxes will be offset by expectations of higher future taxes to repay any resulting government deficits. Keynesian and monetarist economists do not necessarily assume rational expectations and may argue that changes in taxes could have an impact on AD and AS.

Refer to the Information Provided in Figure 32