New Keynesian economists critique rational expectations by arguing that short-term wage stickiness is brought about by

Question

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New Keynesian economists argue that short-term wage stickiness is caused by imperfect information and efficiency wages. They believe that workers and firms do not have perfect information about the economy and wages, leading to wage rigidities in the short run. Additionally, efficiency wages can lead to wage stickiness as firms may pay higher wages to increase worker productivity and reduce turnover, but this can make it difficult to adjust wages in response to changes in economic conditions. The policy ineffectiveness proposition (A) argues that changes in monetary policy will not have real effects on the economy in the long run, but this is not related to the critique of rational expectations. Competitive markets and inflation (C) and market-clearing wages (D) are more associated with the classical school of thought, which does not focus on short-term wage stickiness.

New Keynesian Economists Critique Rational Expectations by Arguing That Short-Term