An Expected Change in the Money Supply Will Result in a Greater

question 91

Multiple Choice

An expected change in the money supply will result in a greater shift in the short-run aggregate supply curve in the new classical approach than in the new Keynesian approach because

• A)households and businesses have rational expectations in the new classical approach but not in the new Keynesian approach.
• B)households and businesses have rational expectations in the new Keynesian approach but not in the new classical approach.
• C)prices are perfectly flexible in the new Keynesian approach, whereas prices are sticky in the new classical approach.
• D)prices are perfectly flexible in the new classical approach, whereas prices are sticky in the new Keynesian approach.

---

Definitions:

Representativeness Heuristic

A cognitive shortcut that involves judging the probability of an event by how much it resembles what we consider to be a typical example of that event.

Availability Heuristic

A quick-thinking process that depends on the first examples that pop into someone's head when they are considering a particular subject, idea, approach, or choice.

Relative Comparisons

The act of evaluating something in relation to another similar item.

Availability Heuristic

A cognitive shortcut that relies on the immediate examples that come to a person’s mind when evaluating a specific topic, concept, method or decision.