A larger than expected increase in aggregate demand will lead to in the of the business cycle.
A) a recession; Keynesian cycle theory
B) a recession; new Keynesian cycle theory
C) an expansion; new classical cycle theory
D) an expansion; real business cycle theory

Question

Quizplus · Accepted Answer

According to new classical cycle theory, a larger than expected increase in aggregate demand would lead to an expansion in the business cycle as markets adjust quickly and efficiently to changes in demand. Real business cycle theory would also suggest an expansion, but is less relevant in this context as it focuses primarily on supply-side factors. Keynesian cycle theory and new Keynesian cycle theory would predict a recession as they would expect the economy to eventually reach full capacity and face constraints that limit its ability to produce more goods and services.

A Larger Than Expected Increase in Aggregate Demand Will Lead