Answer to Question #293386 in Macroeconomics for Ali

Question

What is the theory of New Keynesian Economists?

Answer 1

The new Keynesian theory is based on the quick adjustments of prices and wages. The theory states that wages and prices are sticky, which means prices and wages constantly adjust to short-term fluctuations in the economy. The changes in wages and prices are then used to explain some situations and decisions made by people in the economy, like involuntary unemployment.