Gordon believes that the new Keynesian approach as opposed to other business cycle theories is preferred because
A)it explains information barriers and sticky wages.
B)it explains how workers are "fooled."
C)it explains wage and price stickiness assuming rational firms and workers.
D)it identifies the source of supply side shocks and slow SAS adjustment.

Question

Quizplus · Accepted Answer

The New Keynesian approach is preferred by some because it explains wage and price stickiness by assuming that firms and workers are rational, but face constraints that make it difficult to adjust wages and prices quickly. This contrasts with other theories that might rely on less rational explanations for economic behaviors.

Gordon Believes That the New Keynesian Approach as Opposed to Other