Which of the following theories might the new Keynesians use to explain wage rigidity?
A) permanent income hypothesis
B) labor theory of value
C) law of diminishing returns
D) implicit contract theory
E) quantity theory of money

Question

Quizplus · Accepted Answer

The new Keynesians might use the implicit contract theory to explain wage rigidity. This theory suggests that employers and employees form implicit contracts that specify certain wage and employment conditions. These contracts may create an incentive for employers to maintain stable wages, even in the face of changing economic conditions, in order to preserve the implicit agreement and avoid damaging the long-term relationship with their employees.

Which of the Following Theories Might the New Keynesians Use