A Classical Objection to Keynesian Sticky Price Models Is That

question 38

Multiple Choice

A classical objection to Keynesian sticky price models is that

• A) it is easier for firms to change prices rather than change output.
• B) it is cheaper for firms to change output rather than change prices.
• C) sticky price models are internally inconsistent.
• D) real shocks are more important than nominal shocks.
• E) nominal wages are always fixed.

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Definitions:

Multiplier

In macroeconomics, a factor that quantifies the effect of an initial change in the economy (such as investment or spending) on the total level of economic activity.

Automatic Stabilizers

Economic policies and programs designed to offset fluctuations in a nation's economic activity without additional government action.

Transfer Payments

Payments made by the government to individuals or groups without receiving any goods or services in return, such as social security or welfare benefits.

Crowd-Out Effect

The phenomenon where increased government spending leads to a reduction in private sector spending and investment, often due to higher interest rates.