Which of the following is true from the perspective of the New Keynesian school of thought?
A) Fluctuations in private spending does not affect aggregate demand in an economy.
B) Investment spending remains relatively constant irrespective of the supply shocks.
C) Fluctuations in aggregate demand are not the primary source of problem for policymakers.
D) The government should limit its role to administrative functions.
E) Monetary and fiscal policies often fail to restore macroeconomic equilibrium.

Question

Quizplus · Accepted Answer

The New Keynesian school of thought suggests that fluctuations in aggregate demand, as opposed to supply shocks, are the primary source of problems for policymakers. They maintain that it is the responsibility of the government to use monetary and fiscal policies to stabilize the economy during times of fluctuation in demand. The other options are not views held by the New Keynesian school of thought.

Which of the Following Is True from the Perspective of the New