A principle difference between the new Classical and the new Keynesian models has to do with the choices made by business firms.We find that
A)new classical business firms choose the output level given the price level,while new Keynesian firms choose the price level given the level of output.
B)new classical business firms choose the price level given the output level,while new Keynesian firms choose the output level given the level of output.
C)both new classical and new Keynesian firms select the price level,but only new classical firms select the output level.
D)both new classical and new Keynesian firms select the output level,but only Keynesian firms select the price level.

Question

Quizplus · Accepted Answer

The principle difference between the new Classical and the new Keynesian models is the way business firms make decisions. New Classical firms choose the output level given the price level, assuming that prices are perfectly flexible. On the other hand, new Keynesian firms choose the price level given the level of output, assuming that prices are stickier in the short run. Therefore, the correct option is A.

A Principle Difference Between the New Classical and the New