In the new Keynesian view, expected changes in monetary policy can affect output in the short run because
A)agents do not have rational expectations.
B)prices are sticky.
C)business firms rarely pay attention to policy announcements.
D)they directly increase the funds available for businesses and consumers to spend.

Question

Quizplus · Accepted Answer

In the new Keynesian view, prices are sticky, meaning they do not adjust immediately to changes in supply and demand. Therefore, expected changes in monetary policy can affect output in the short run because they affect the behavior of firms and consumers who adjust their spending and production plans based on expected changes in prices.

In the New Keynesian View, Expected Changes in Monetary Policy