Final answer:
New classical economics views long-run changes in aggregate demand as ineffective at changing output and employment levels, with the economy's output determined by its potential GDP and aggregate supply.
Step-by-step explanation:
New classical economics suggests that in the long run, changes in aggregate demand will cause no change in output and employment. Aggregate demand can have a short-run impact on output and on unemployment, but any such effects will only be temporary.
In the neoclassical view, the aggregate supply is represented by a vertical curve in the long run, indicating that potential GDP and the productive capacity of the economy determine the real size of the economy's output, irrespective of fluctuations in aggregate demand. As such, changes in aggregate demand lead to temporary changes in the price level and short-run adjustments in employment and output. However, these are short-lived as the economy eventually adjusts back to its potential GDP.
In the event of a demand-induced recession, neoclassical economists anticipate that unemployment will result in wage flexibility over time, leading to a shift in the short-run aggregate supply to the right. This adjustment, even if it may take a long time, restores the output level to where it aligns with potential GDP, emphasizing the core belief that the productive capacity of the economy is the true driver of output in the long run, not the level of aggregate demand.