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:

Human Resources

The abilities, skills, and health of human beings that contribute to the production of both current and future output. Investment in training and education can increase the supply of human resources.

Physical Resources

Tangible assets used in the production or delivery of goods and services, such as machinery, buildings, and raw materials.

Scarcity

The fundamental economic problem of having seemingly unlimited human wants and needs in a world of limited resources.

Opportunity Cost

Renouncing the possibility of gains from different alternatives by making a single choice.