An important feature of the New Keynesian model is that
A)the labour market may not clear.
B)the goods market always clears.
C)all markets clear.
D)the money market may not clear.
E)the labour market always clears.

Question

Quizplus · Accepted Answer

The New Keynesian model allows for the possibility that the labor market may not clear, meaning that there may be an excess supply or demand for labor at the prevailing wage rate. This is due to frictions such as search costs and sticky wages. However, it still assumes that the goods market always clears, meaning that there is always equilibrium between supply and demand for goods and services. The model also assumes that the money market may not always clear, as changes in the money supply or demand can affect interest rates and ultimately output and inflation.

An Important Feature of the New Keynesian Model Is That