The new Keynesians believe that the economy is not always in equilibrium because:
A) of the existence of voluntary unemployment.
B) the Federal Reserve policy is too restrictive.
C) government intervention destabilizes the economy.
D) of the existence of wage and price rigidities.
E) the rate of inflation is too high.

Question

Quizplus · Accepted Answer

New Keynesians believe that wage and price rigidities exist, meaning that they can adjust slowly in response to changing economic conditions, leading to a temporary deviation from equilibrium in the economy. This can result in involuntary unemployment and fluctuations in economic activity.

The New Keynesians Believe That the Economy Is Not Always