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April 4, 2013 at 10:54 am #17753
The old Keynesians left out micro-economics altogether. By doing so they implicitly assumed that prices and wages were sticky, i.e., did not adjust rapidly. They were criticized by the New Classical economists who asserted that if prices and wages adjust rapidly, then changes in aggregate demand with not adversely affect production in the economy. The New Keynesians came up with micro-economic arguments for sticky prices and wages.
Here is Greg Mankiw, a leading New Keynesian, on New Keynesianism: