According to the new Keynesians:
A)prices adjust to equate demand and supply in every market simultaneously.
B)random variations in the money supply are the original source of economic fluctuations.
C)unemployment is voluntary.
D)aggregate supply shocks can be a prime source of economic instability.
E)government policy cannot stabilize the economy.

Question

Quizplus · Accepted Answer

According to the new Keynesians, aggregate supply shocks, such as changes in technology or natural disasters, can cause economic instability. They believe that imperfect competition in markets can lead to sticky prices, which take time to adjust to changes in demand and supply. This can lead to output and employment fluctuations in the short run, which can be stabilized through government policy interventions. Therefore, options A, B, and E are incorrect, and C is not a view held by new Keynesians.

According to the New Keynesians