Both the New Classical and New Keynesian Business Cycle Theories

question 57

Multiple Choice

Both the new classical and new Keynesian business cycle theories agree that

• A) the money wage rate is influenced by rational expectations of the price level.
• B) unexpected changes in aggregate demand cannot result in a business cycle.
• C) the long- term nature of wage contracts allow expected changes in the price level to cause business cycles.
• D) expected changes in aggregate demand lead to the business cycle.

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Definitions:

Debt-Equity Ratio

The debt-equity ratio is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.

Pre-Tax Cost

The expense or cost that a company incurs which is calculated before any taxes are applied.

Return on Assets

A financial metric that indicates how profitable a company is relative to its total assets, demonstrating how efficient a company is at using its assets to generate earnings.