According to new classical economists who adhere to the policy irrelevance proposition,
A)monetary policy can effectively reduce the rate of unemployment in the short run.
B)workers are not rational in the long run.
C)the Phillips curve actually slopes upward,not downward as traditionally assumed.
D)expansionary monetary policy will only lead to a higher rate of inflation in the long run.

Question

Quizplus · Accepted Answer

New classical economists believe that expansionary monetary policy may temporarily reduce unemployment in the short run, but in the long run, it will only lead to higher inflation rates. This is because they believe that workers are rational and will adjust their expectations of inflation based on changes in monetary policy, leading to an increase in wages and prices that cancel out any temporary decrease in unemployment. They also believe that the Phillips curve is not a reliable tool for predicting economic outcomes, as it does not account for these rational expectations.

According to New Classical Economists Who Adhere to the Policy