-In the new classical model in the figure above, the initial impact of an unanticipated monetary expansion ________. A) increases output from Y_n to Y₂, and the inflation rate from P₁ to P₂ B) decreases output from Y_n to Y₄, and the inflation rate from P₃ to P₄ C) does not change output and increases the inflation rate from P₁ to P₃ D) does not change output and decreases the inflation rate from P₃ to P₁

Question

Quizplus · Accepted Answer

In the new classical model, an unanticipated monetary expansion typically leads to an increase in output in the short term due to sticky prices and wages, as well as an increase in the inflation rate as the economy adjusts to the unexpected increase in the money supply.

-In the New Classical Model in the Figure Above, the Initial