Question

New Keynesian economists critique rational expectations by arguing that short-term wage stickiness is brought about by a. the policy ineffectiveness proposition. b. imperfect information and efficiency wages. c. competitive markets and inflation. d. competitive markets and market-clearing wages.

Answer 1

New Keynesian economists critique rational expectations by arguing that short-term wage stickiness is brought about by

b. imperfect information and efficiency wages.

Step-by-step explanation:

The assumption in macroeconomic theories is that economic agents, households, and companies exercise rational expectations. The New Keynesian economics posits that rational expectations have become distorted as a result of market failure, arising from asymmetric information and imperfect competition, thus questioning the ability of markets to self-regulate and self-correct.