Thursday, February 17, 2011

Back to more mundane things...

Why certain economic models (ahem, Keynesian sticky prices) are stupid:


"Which of the following impediments to economic adjustment do you believe to be the most important?


a) the cost of establishing a new enterprise

b) the cost of integrating new workers and equipment into an existing enterprise

c) the cost of adapting physical and human capital to new circumstances

d) the cost of whiting out an old price list (menu) and updating it with new prices


If you answered (d), then congratulations--you have shown your New Keynesian bona fides." Link here.