Which of the following is a characteristic of the 'Menu Costs' argument in New Keynesian economics?
A. Prices are always flexible
B. Costs of changing prices can lead to price stickiness even if the costs are small
C. Menu costs are irrelevant for aggregate fluctuations
D. Only wages are sticky
Answer: Option B
Solution (By JKSSB Mock Tests)
Menu costs are the small costs of changing prices. New Keynesian models show that even small menu costs can generate substantial nominal rigidity and real effects of monetary policy.
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