Final answer:
New Keynesian theory assumes that individuals have rational expectations and wages and prices are not completely flexible in the short run, contrasting with neoclassical rapid adjustment beliefs and acknowledging the limitations of the rational expectations assumption. The correct answer is c.
Step-by-step explanation:
The two key assumptions of new Keynesian theory include people holding rational expectations and the acknowledgement that wages and prices are not completely flexible in the short run. This means that, while individuals utilize all available information to predict future economic conditions as accurately as possible, wages and prices do not adjust instantly to changes in economic conditions. This theory contrasts with the neoclassical view, where it is believed that adjustments can be quite rapid, and the assumption of entirely rational expectations might be too strong a simplification of real-world behavior.
Alternatively, the concept of adaptive expectations posits that individuals and firms adjust their expectations based on past experiences and make gradual changes as circumstances evolve. However, unlike the rational expectations approach, those with adaptive expectations do not instantaneously assimilate all available information to forecast future events accurately.