The new Keynesian economists argue that prices are relatively rigid because of
A)menu costs.
B)overlapping staggered contracts.
C)efficiency wages.
D)All of the above.

Question

Quizplus · Accepted Answer

The new Keynesian economists argue that prices are relatively rigid because of a combination of menu costs, overlapping staggered contracts, and efficiency wages. Menu costs refer to the costs that firms face in changing their prices, such as the cost of printing new menus or updating computer systems. Overlapping staggered contracts refer to the fact that contracts between firms and workers or suppliers often have different start and end dates, which can make it difficult for firms to adjust prices in response to changes in demand. Finally, efficiency wages occur when firms pay workers higher wages than the market equilibrium in order to increase productivity or reduce turnover, which can make it more difficult for firms to adjust prices downward in response to changes in demand.

The New Keynesian Economists Argue That Prices Are Relatively Rigid