Which of the following is a characteristic of the 'New Keynesian' Phillips Curve?
A. It is based on adaptive expectations only
B. It incorporates forward-looking expectations and sticky prices
C. It assumes continuous market clearing
D. It denies any role for demand factors
Answer: Option B
Solution (By JKSSB Mock Tests)
The New Keynesian Phillips Curve is derived from models with staggered price setting and rational expectations, linking current inflation to expected future inflation and the output gap or marginal cost.
Explanation:
A large body of research finds that financial development—deeper, more efficient and more inclusive financial systems—tends to raise long-run growth by relaxing credit constraints and improving resource allocation.
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