Two Key Assumptions of New Keynesian Theory Include

question 87

Multiple Choice

Two key assumptions of new Keynesian theory include:

• A) (1)people hold rational expectations,and (2)wages and prices are not completely flexible in the short run.
• B) (1)people hold adaptive expectations,and (2)wages and prices are inflexible.
• C) (1)people hold rational expectations,and (2)wages and prices are flexible.
• D) (1)people hold neither adaptive nor rational expectations and (2)prices are inflexible.
• E) none of the above

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Definitions:

Marginal Productivity Theory

A principle in economics that suggests that the addition of a unit of labor or capital leads to a change in output, essentially quantifying the extra output produced by adding one more unit of a resource.

Equilibrium Value

The price and quantity at which the supply of an item equals the demand for that item, achieving a balance in the market.

Marginal Product

The additional output that is produced as a result of utilizing one more unit of a variable input, holding other inputs constant.

Equilibrium Quantity

The level of goods or services offered and demanded at the price of equilibrium.