The Difference Between New Classical Theory and New Keynesian Theory

question 148

Multiple Choice

The difference between new classical theory and new Keynesian theory is that

• A) in new classical theory wages are assumed to be flexible,and in new Keynesian theory wages are assumed to be somewhat inflexible.
• B) in new classical theory wages are assumed to be somewhat inflexible,and in new Keynesian theory wages are assumed to be flexible.
• C) adaptive expectations is the dominant expectations theory in new classical theory,and rational expectations is the dominant expectations theory in new Keynesian theory.
• D) in new Keynesian theory the short-run aggregate supply curve is vertical,and in new classical theory the short-run aggregate supply curve is upward sloping.

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Definitions:

Paid-In Capital

Funds raised by a company from investors in exchange for stock, representing the capital provided by shareholders through the purchase of shares.

Reissuance

The process of selling previously issued securities, often shares that have been bought back by the company.

Treasury Stock

Shares repurchased by the issuing company, reducing the amount of outstanding stock on the open market.

Shares Outstanding

The total number of shares of stock that are owned by investors, including both public shareholders and company insiders.