According to the new classical economists and the policy irrelevance proposition,real GDP is determined by
A)the economy's aggregate demand curve.
B)the economy's long-run aggregate supply curve.
C)the rate of inflation only.
D)a combination of fiscal policy and monetary policy.

Question

Quizplus · Accepted Answer

According to the new classical economists and the policy irrelevance proposition, real GDP is determined by the economy's long-run aggregate supply curve. This means that the level of output produced by an economy is determined by its ability to produce goods and services in the long run, which is determined by factors such as the quality and quantity of its labor force, the level of technology, and the availability of capital. Therefore, the economy's long-run potential output is determined independently of changes in aggregate demand, which means that fiscal and monetary policies aimed at stimulating the economy are unlikely to have a significant impact on real GDP in the long run.

According to the New Classical Economists and the Policy Irrelevance