In the new Keynesian view, disinflation is costly primarily because
A)workers and firms lack rational expectations.
B)policy announcements are rarely credible.
C)nominal wages and prices are sticky.
D)disinflation policy shifts the LRAS curve.

Question

Quizplus · Accepted Answer

In the new Keynesian view, disinflation is costly primarily because nominal wages and prices are sticky, meaning they do not adjust immediately to changes in the economy. This can result in decreased output and higher unemployment during the adjustment period.

In the New Keynesian View, Disinflation Is Costly Primarily Because