Both the new classical and new Keynesian business cycle theories agree that
A) the money wage rate is influenced by rational expectations of the price level.
B) expected changes in aggregate demand lead to the business cycle.
C) unexpected changes in aggregate demand cannot result in a business cycle.
D) the long-term nature of wage contracts allow expected changes in the price level to cause business cycles.

Question

Quizplus · Accepted Answer

Both the new classical and new Keynesian theories incorporate the idea of rational expectations, meaning that individuals base their decisions on all available information, including expectations of future events such as changes in the price level. As a result, the money wage rate is influenced by these rational expectations.

Both the New Classical and New Keynesian Business Cycle Theories