In the new classical view, why can\'t firms distinguish between increases in the

Question

In the new classical view, why can't firms distinguish between increases in the general price level and increases in the relative prices of their products? (Check all that apply.) A. Firms can easily detect price changes of their products, but it is harder and takes a while to detect changes in the overall price level. B. There is no methodology to distinguish between increases in the general price level and increases in relative prices. C. Firms can easily evaluate changes in the overall price level (using CPI, GDP deflator, etc.), but it is harder to track changes in prices of their products because they change so frequently. D. There is an asymmetry-firms have more information on their prices than on the general price level throughout the economy.

Explanation / Answer

The new classical view is built entirely on the neoclassical framework and emphasizes the importance of rational expectation while forming decisions.

In the new classical view, firms can’t distinguish between increase in the general price level and increases in the relative prices of their products because:

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