In the new Keynesian model
A)wages and prices are assumed to be sticky with respect to expected changes in the price level.
B)only unanticipated policy can affect aggregate output and unemployment.
C)only anticipated policy can affect aggregate output and unemployment.
D)unanticipated policy has no effect on aggregate output and unemployment.

Question

Quizplus · Accepted Answer

The new Keynesian model assumes that wages and prices are sticky, meaning they do not adjust immediately to changes in expected changes in the price level. This suggests that anticipated policy can have an effect on aggregate output and unemployment. However, unanticipated policy can also have an effect if it leads to unexpected changes in the economy that affect wages and prices. Therefore, B, C, and D are not the best choices.

In the New Keynesian Model