According to new Keynesian theory, if policy is correctly anticipated, increases in aggregate demand will stimulate...
According to new Keynesian theory, if policy is correctly anticipated, increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in
a. the short run or the long run.
b. neither the short run nor the long run.
c. the short run, but not in the long run.
d. the long run, but not in the short run
Homework Answers
Ans. Correct Option is C. the short run ,but not in the long run
New keynesian thoery
it is advocated that wages and price in the short run are sticky , means that in short term economic fluatuation can only be slowly adjusted . And also that monetory policy has a big role in terms of influencing the economy.
And when theres an increase in AD , in will influence the price and wages to go higher , hence it will make unemployment rate to fall in the short run.
After a period of time things starts to get to normalize and thats why , in the long run the economy faces more unemployment compared in the short run .
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