Which of the following is a key assumption in Mankiw's model of price stickiness?
A)people have adaptive expectations
B)the private benefits from changing prices are smaller than the social benefits
C)GDP will never return to trend after a disturbance
D)firms do not have enough market power to set their own prices
E)markets always clear immediately

Question

Quizplus · Accepted Answer

In Mankiw's model of price stickiness, the assumption is made that the private benefits from changing prices are smaller than the social benefits. This means that firms may be hesitant to adjust their prices even if it would be beneficial for the overall economy. This assumption is key to understanding why prices may be slow to adjust in response to changes in demand or supply.

Which of the Following Is a Key Assumption in Mankiw's