New Keynesian Theorists Argue That

question 5

Multiple Choice

New Keynesian theorists argue that

• A) price and wage adjustments in response to policy changes often overcompensate and cause further price disruptions.
• B) prices and wages may not be free to adjust in response to policy changes.
• C) unions and big business have considerable power and often choose not to change wages and prices so as to deliberately offset policy changes enacted by the government.
• D) the Fed and the Congress rarely do what they say they will do,so one should never listen to what they say.
• E) new classical rational expectations theories about how expectations are formed are completely wrong.

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Definitions:

Equilibrium Price

The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.

Federal Income Tax

Federal income tax is the tax levied by the national government on individuals and organizations' annual earnings.

Taxpayers

Individuals or entities obligated to pay taxes to governmental authorities.

Income Tax

A tax imposed by the government directly on individuals' or organizations' income.