How do New Keynesians use the existence of long-term nominal contracts to help explain the failure of prices to adjust in the short run?
What will be an ideal response?
When contracts of this type exist, firms are not able to change prices easily in response to changes in demand because their costs of production are fixed. Although many such long-term arrangements exist in the economy, not all contracts come up for renewal during a particular period because they are overlapping or staggered. So, only some wages and prices can be adjusted in the current period.
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If a perfectly competitive industry is neither expanding nor contracting, we would typically expect that: a. accounting profits to be zero
b. economic profits to be zero. c. the price of the good will be stable d. both (b) and (c) would be true.
In international trade, all payments and gifts that are related to the purchase or sale of both goods and services are referred to as the
A) current account. B) financial account. C) labor account. D) official reserve transactions account.