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Discuss the various types of frictions and distortions in labor and product markets that make the...

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Economics

Discuss the various types of frictions and distortions in laborand product markets that make the adjustments of wages and pricesslow, according to New Keynesian macroeconomists.

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Ans The new Keynsian macroeconomists put forward basically two arguments in favour of wage and price rigidity in labor and product markets respectively The slow adjustment of wages in the labor market is explained by the efficiency wage hypothesis which states that wages are set not to clear market The incentive of the entrepreneurs is to pay their employees more than the the    See Answer
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