A central concept of New Keynesian macroeconomics is that in setting prices and wages, self-interested firms and workers are acting
A) irrationally, since their self-interest is badly damaged by the ensuing business cycles.
B) irrationally, since this imposes business cycles on everyone not part of their arrangements.
C) rationally, since they do not bear a fully offsetting cost of business cycles.
D) rationally, since the total welfare loss of business cycles must be small enough to justify the price and wage setting.
C
You might also like to view...
At the point where the consumption function crosses the 45-degree line:
a. consumption is equal to disposable income, and therefore, saving is zero. b. consumption is less than income, and saving is present. c. consumption is greater than income, and dissaving is present. d. planned saving equals actual saving minus disposable income.
When GDP decreases, consumption spending increases
a. True b. False Indicate whether the statement is true or false
If the U.S. purchases oil from Nigeria, what is the effect in the foreign exchange market?
a. It will increase demand for U.S. dollars. b. It will decrease demand for U.S. dollars. c. It will increase supply of U.S. dollars. d. It will decrease supply of U.S. dollars.
The tendency for people to behave in a riskier way or to renege on contracts when they do not face the full consequences of their actions is called:
A. collective bargaining. B. adverse selection. C. moral hazard. D. counter information.