The standard IS curve is adjusted in new Keynesian theory to account for ________.
A)the forward-looking behavior of households and firms
B)the difference between real and nominal variables
C)changes in GDP,or Gross Domestic Product
D)the impact of a rising national debt

Question

Quizplus · Accepted Answer

In new Keynesian theory, the standard IS curve is adjusted to account for the forward-looking behavior of households and firms. This means that they take into account expected future economic conditions, such as changes in interest rates and inflation, when making decisions about consumption, investment, and saving. This results in a more realistic representation of the economy and helps to explain some of the observed phenomena that cannot be accounted for by the traditional Keynesian model. The other options are not relevant to the adjustment of the IS curve in new Keynesian theory.

The Standard IS Curve Is Adjusted in New Keynesian Theory