Comment on the following statement. Do you agree or disagree with this view concerning the effectiveness of systematic or anticipated fiscal policy actions within a new classical economic framework? Explain.
The new classical economics or rational expectations theory provides a convincing explanation of the inability of systematic monetary policy to affect real income or employment. The situation is quite different, however, with fiscal policy actions such as increases in government spending, which will affect real output and employment whether they are anticipated or not-the difference between monetary and fiscal policy being that monetary policy affects aggregate demand and, hence, output by inducing private economic agents to change their demands for output. With rational expectations this effect will be offset. An increase in government spending affects aggregate demand directly, and there is no way for the private sector to offset its effects on income and employment.