The Key Difference Between New Classical Cycle Theory and New

Multiple Choice

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

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