New Keynesian Economics

New Keynesian Economics is a modern approach to understanding how economies work, focusing on how prices and wages are sticky—meaning they don’t adjust instantly. This stickiness can cause fluctuations in output and employment, especially when the economy faces shocks like changes in demand or policy actions. It incorporates ideas from traditional Keynesian thought, emphasizing that government policies, like adjusting interest rates or government spending, can help stabilize the economy. Overall, it explains why economies might not always self-correct quickly and highlights the role of policies in maintaining economic stability.