A principle difference between the original Keynesian model and the new Keynesian model is that in the new version
A)the traditional assumptions of profit maximization is no longer included.
B)monetary policy is impotent.
C)wages and prices adjust slowly to market conditions.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The original Keynesian model assumed that wages and prices were rigid and did not adjust quickly to changes in market conditions. The new Keynesian model also assumes this, but it also incorporates the traditional assumptions of profit maximization and the effectiveness of monetary policy. Therefore, options A and B are incorrect, making option C the correct answer.

A Principle Difference Between the Original Keynesian Model and the New