The position of new Keynesian economics is that:
A) wages are flexible in the macroeconomy.
B) there is no tradeoff between unemployment and inflation.
C) a free market economy will automatically operate at full employment.
D) businesses set prices based on what is needed to maximize their profits, not on what is occurring in the economy at large.

Question

Quizplus · Accepted Answer

New Keynesian economics suggests that prices are sticky due to various frictions, and firms set prices to maximize profits, often leading to price rigidity in the short term despite changes in the macroeconomic environment. This contrasts with the idea that prices and wages adjust quickly to reflect changes in supply and demand.

The Position of New Keynesian Economics Is That