Which of the following is a characteristic of the 'New Keynesian' models used for monetary policy analysis?
A. They assume continuous market clearing and flexible prices
B. They combine intertemporal optimisation, rational expectations and nominal rigidities
C. They rely only on adaptive expectations
D. They ignore expectations completely
Answer: Option B
Solution (By JKSSB Mock Tests)
Modern New Keynesian DSGE models used for policy analysis feature optimising households and firms, rational expectations, and some form of nominal rigidity (sticky prices or wages).
Explanation:
In the short run, costs are classified as fixed, variable and total. Sunk costs are costs that have already been incurred and cannot be recovered, relevant in both short and long run decisions.
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