Innovation (25 Points): Consider an New Keynesian economy in an initial equilibrium. The leader of this country has just implemented a price-fixing law where firms are not allowed to adjust their prices for five years. As the leader of a consumer rights group, your task is to make an eco- nomic argument against this policy. Why is total price stickiness worse than partial price stickiness? Demonstrate with analysis of two exogenous changes in the New Keynesian model.
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