The most important new Keynesian assumption that distinguishes this theory from the real-business-cycle theory is the new Keynesian assumption

Question

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The most important new Keynesian assumption distinguishing it from the real-business-cycle theory is the assumption of a horizontal short-run aggregate supply curve, which implies that prices and wages are sticky in the short run. This contrasts with the real-business-cycle theory, which assumes price flexibility.

The Most Important New Keynesian Assumption That Distinguishes This Theory