Keynesians contend that stabilization policy can offset the output and unemployment effect of unanticipated inflation because
A)nominal wage and price stickiness prevent prices and inflation from adjusting quickly and as a result unemployment sustains.
B)price and inflation expectations do not adjust quickly as claimed by classical economists.
C)nominal wage and price adjust quickly and as a result cyclical unemployment remains zero.
D)price and inflation expectations adjust quickly and employment rises.

Question

Quizplus · Accepted Answer

Keynesians believe that nominal wage and price stickiness prevent prices and inflation from adjusting quickly, which leads to unemployment sustains. Therefore, stabilization policies like monetary and fiscal policy can offset the output and unemployment effect of unanticipated inflation.

Keynesians Contend That Stabilization Policy Can Offset the Output and Unemployment