According to the Keynesian model of nominal-wage rigidity,
A)if actual and expected prices are the same,output gap will be zero.
B)even if actual and expected prices are the same,output gap will be positive.
C)even if actual and expected prices are the same,output gap will be negative.
D)output gap exists because of price misperception.

Question

Quizplus · Accepted Answer

In the Keynesian model, if actual and expected prices are the same, firms and workers have no reason to change their production or employment levels, leading to no output gap.

According to the Keynesian Model of Nominal-Wage Rigidity