Question

Explain the nature of imperfect competition and its implication to labor market in each of the New Keynesian model

Answer 1

keynesian model Question Esoplain the nature of imperfect competition and its implication to labour market in each of the New Anower - In new Keynesian model households and firms have vational expédations. Il assumes thexs PA there is variety of market failures. In now keynesian model imperfect competition prices and wages, ans sticky and it do not adjust instantly to change the economic condition of the nation. Due to market failure and Iwager, price skickness the eco economy may not have felis employment. Macroeconomic stablezation by Monetary and fiscal policy) will lead to Jbetter macroeconomica outcome than laissez faire policy C government intes vention is not there in Frontadion between private parties like rules and regulation, subsidy Haration) Contral bank in in short run. as well as Implications - Ch New keynesian states that in a long run change in money supply is neutral. As prices are sticky sticky so increase money will also increase output and lower wn employment C2) Extensive monetary policy in short term gaind in employment output will mise inflation to thats why it use monetary policy for stablization, without [recession it will be impossible to eliminate inflation is extensive monetary policy is used (3) Whenever economy is hit hy umebeded external shock, Offset of macroeconomico effect of shock with monetary policy is preferred. Unexpected shock generally lower output as well as inflation. In such case increase in

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