An Important Difference Between the New Classical and New Keynesians

question 27

Multiple Choice

An important difference between the new classical and new Keynesians views is that new classicals

• A)assume that all firms are price takers, but new Keynesians assume that some firms are price setters.
• B)take into account the existence of long-term nominal wage and price contracts, but new Keynesians do not believe they are important.
• C)focus on the importance of investment spending, but new Keynesians believe that government spending is more important.
• D)believe that the aggregate supply curve is horizontal, even in the short run, but new Keynesians believe that the aggregate supply curve slopes upward in the short run.

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