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According to new classical economics, fiscal policy can change equilibrium real GDP only if it changes...

According to new classical economics, fiscal policy can change equilibrium real GDP only if it changes the price level or one of the determinants of aggregate supply, and people expect this change. True or False

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Answer #2

False

if people are going to expect this change is there will be no change in the equilibrium GDP because people will revise their expectations and will act accordingly. It is the role of expectation in the sense that only unexpected changes can bring changes in the real GDP. Fiscal policy can increase the real GDP only when it is announced unexpectedly and it changes the price level or one of the determinant of aggregate supply when people are not expecting it.

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