New Keynesian Revival

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New Keynesian Revival

• They use the micro foundations approach as used
  by the New Classical school.
• They argue that the Keynesian conclusions about
  the effectiveness of fiscal and monetary policy
  are still valid because goods and labour market
  do not clear quickly because of imperfections in
  these markets. Prices and wages are sticky.

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Market fails and prices and wages are sticky
because of following reasons

• menu cost
• long period sales and purchase agreements and
• imperfect competitions in goods markets and
• wage contracts between unions and employers,
• insider-outsider behaviour of unions,
• efficiency wage behaviour in the labour market.

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Role of Price and Wage Mark Ups for the Upward
Sloping Aggregate Supply Line?
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Old QuestionWhy is the AS Curve Upward
Sloping?New answer Mark Ups in Wage Rate and
Prices
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Menu Cost and Impact of an Increase in Aggregate
Demand
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Menu Cost and Impact of an Increase in Aggregate
Demand
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Output Impact of Menu Costs
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Mankiws Menu Cost Model
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Profit, Menu Cost and Output
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Efficiency wage and unemployment
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Insider-outsider theories of wage bargaining and
determination of unemployment
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References