New Classical theory believes that policy changes will have different effects, depending on whether or not the change was anticipated, and whether or not it was anticipated correctly.
1. State the major assumptions of new classical theory.
2. State the policy ineffectiveness proposition (PIP).
3. Describe the effects predicted by this theory of an expansionary policy change when the change is correctly anticipated.
4. Describe the effects predicted by this theory of an expansionary policy change when the change is incorrectly anticipated.
5. Describe the effects predicted by this theory of an expansionary policy change when the change is unanticipated.