In the new Keynesian business cycle theory, __________can effect real GDP.
A) expected and unexpected changes in aggregate demand
B) only unexpected changes in the money wage rate
C) only unexpected changes in aggregate demand
D) only expected changes in aggregate demand

Question

Quizplus · Accepted Answer

In the new Keynesian business cycle theory, both expected and unexpected changes in aggregate demand can affect real GDP. This is because the theory emphasizes the role of price stickiness and imperfect information in the economy, leading to fluctuations in output and employment in response to changes in demand. Unexpected changes may have a more pronounced effect due to the element of surprise and resulting adjustments in nominal prices and wages, but expected changes can also impact the economy through changes in expectations and adjustments in prices and wages over time. Changes in the money wage rate alone (option B) do not capture the full picture of the theory, as other factors such as prices, interest rates, and expectations also play a role in determining aggregate demand and output. Option C and D are also incorrect, as they limit the impact of changes to only unexpected or expected shifts in aggregate demand and do not reflect the full range of possibilities in the theory.

In the New Keynesian Business Cycle Theory, __________Can Effect Real