This is the proper decision because we know that inflation will soon drive our production costs up. Remember, such output changes, however, will occur only in the short-run. As a result, as we gain better information and realize the price increase was inflationary, we will change our price expectations to reflect a new price level. If we correctly anticipate the new price level, output will stay at its natural rate. If we guess a price too high or low, output will again be greater or less than the natural rate of output.
Neoclassical economists oppose the use of discretionary fiscal and monetary policy.
The shocks of discretionary policy, in the view of neoclassical economists, worsen the business cycle. In other words, they are convinced that discretionary policy, which Keynesians created to counter the business cycle, actually contributes to these economic fluctuations. First, all government fiscal and monetary polices would be announced in advance and implemented so all decision makers in the economy could count on those policies being carried out. Second, the Federal Reserve would be required to operate on the monetary rule. That is, the Fed would be required to expand the monetary base at the same rate as the historical expansion rate of output.