According to the new classical model,government fiscal and monetary policy changes are effective
A)all of the time.
B)only when the short-run aggregate supply curve is upward sloping.
C)only when the policy changes affect aggregate demand.
D)only when the policy changes are unanticipated.

Question

Quizplus · Accepted Answer

According to the new classical model, the economy operates at its full potential output level in the long run, and any government policy changes would only temporarily affect the economy. However, if the policy changes are unanticipated, they can lead to changes in the relative prices of goods and services, leading to changes in the allocation of resources and output. Hence, in the new classical model, government policy changes can only be effective if they are unanticipated.

According to the New Classical Model,government Fiscal and Monetary Policy