In the new classical model, ________.
A) a rise in the expected price level results in an immediate and equal rise in wages and prices
B) anticipated policy has no effect on aggregate output and unemployment
C) unanticipated policy has no effect on aggregate output and unemployment
D) A and B only

Question

Quizplus · Accepted Answer

In the new classical model, a rise in the expected price level leads to an immediate adjustment in wages and prices, and anticipated policy is believed to have no effect on aggregate output and unemployment. This is because economic agents are assumed to have rational expectations and adjust their behavior based on these expectations, negating the impact of anticipated policies.

In the New Classical Model, ________