How Do New Keynesians Use Menu Costs to Help Explain

question 56

Essay

How do new Keynesians use menu costs to help explain price stickiness in the short run?

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Definitions:

Income

Payment acquired, typically at consistent times, for services performed or through investment profits.

Price

The money amount expected, needed, or conferred as a payment for a product.

Miles

A unit of distance or length, traditionally equal to 5280 feet in the United States and slightly more than 1609 meters by international agreement.

Perfect Substitutes

Goods that a consumer is completely indifferent between, meaning that one can replace the other in consumption without any loss of utility.