Question

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

Answer 1

The new Keynesian model highlights the sticky behaviour of wages and prices . Also explain the reasons of existence of involuntary unemployment and the strong approach of monetary policy in the market.
The imperfect competition explains the fundamental nature of new Keynesian model where as in competitive or perfect market conditions the prices are taken up by the firms for adjusting the fluctuations of the market.

Coming to labour market it's always shows the nature of imperfect competition as the wages are dependent on labour as they have the power to set and influence the wage rate and each firm is a wage taker in general also it depend on the marginal revenue product. The market has the power to set wages and prices itself makes it imperfect competition market. In labour market the same can be applied using real wage and level of employment to determine how the imperfect competition influence the wage rate.