The Key Difference Between the New Classical Theory of the Business

question 246

Multiple Choice

The key difference between the new classical theory of the business cycle and the new Keynesian theory of the business cycle is that the new classical theory believes that ________ while the new Keynesian theory believes that ________.

• A) expected changes in aggregate demand will change real GDP; expected changes in aggregate demand will not change real GDP
• B) only unexpected changes in aggregate demand will change real GDP; only expected changes in aggregate demand will change real GDP
• C) only unexpected changes in aggregate demand will change real GDP; both expected and unexpected changes in aggregate demand will change real GDP
• D) the short-run aggregate supply curve is horizontal; the short-run aggregate supply curve is vertical

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Definitions:

Yield

The income return on an investment, such as the interest or dividends received, expressed as an annual percentage rate based on the investment's cost, its current market value, or its face value.

Exchange Rate

Price of a unit of one country’s currency in terms of another country’s currency.

U.K. Bills

Short-term debt instruments issued by the United Kingdom government, typically with a maturity of less than one year.

Risk-Free Rate

The theoretical return of an investment with zero risk, often represented by the yield of government bonds.