In the New Keynesian Model, assume that the goal of The Fed is to keep unemployment as low aspossible. What is the appropriate response to a negative real shock? a.Increase the money supply, shifting DAD to the left b.Buy bonds, shifting DAD to the right c.Sell bonds, shifting DAD to the left d.Decrease the money supply, shifting DAD to the left e.None of the above

In the New Keynesian Model, assume that the goal of The Fed is to keep unemployment as low aspossible. What is the appropriate response to a negative real shock? a.Increase the money supply, shifting DAD to the left b.Buy bonds, shifting DAD to the right c.Sell bonds, shifting DAD to the left d.Decrease the money supply, shifting DAD to the left e.None of the above

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter16: Expectations Theory And The Economy

Section: Chapter Questions

Problem 4QP

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Consider the classical AS-AD model with misperceptions. Assume that the economy is initially at its general equilibrium. Now, suppose the central bank considers an increase in the nominal money supply that is not anticipated by households or firms. a. How does the misperception theory work? b. Which of the three markets is first affected (labor, goods, or asset market)? Explain and show graphically how this market is affected by an unanticipated increase in the nominal money supply. c. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the short-run equilibrium. d. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the long-run (general) equilibrium.
You have a two year agreement with Netflix for $11.99/month and Amazon Prime for $12.99/month. If an economic expansion occurs during this time and aggregate demand rises, a. Sticky prices like Netflix and Amazon suggest there will be no GDP growth in the New Keynesian Model short-run. b. Fixed price contracts like Netflix and Amazon imply that inflation will be higher in the long-run if the demand shock is permanent. c. The RBC model predicts higher long-run economic growth following this aggregate demand shift. d. None of the above. e. All of the above.
We have discussed two models that describe the relationship between inflation and economicgrowth. Which of the following is a property of the New Keynesian Model but NOT the RealBusiness Cycle (RBC) Model?a.Monetary policy has no effect on long run economic growth b.Recessions can be caused by a fall in aggregate demand. c.Prices are fully flexible in both the short and long run. d.All the above are properties of the RBC model. e.None of the above are properties of the New Keynesian model.
In the extended version of the classical model, based on the misperceptions theory. a. Graphically show the effect of an unanticipated increase in money supply using the AS-AD model. Make sure to label the short-run equilibrium point. b. Repeat part (a). This time, assume that the public was anticipating this increase in money supply. c. Is the short-run equilibrium in part (b) point the same as in part (a). Why or why not?
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In the classical model, a temporary decrease in government purchases causes the IS curve and the FE line to shift to the left. In general equilibrium, if the IS curve shifts to the left more than the FE line does, the real interest rate will be before the shock. A. higher than B. the same as it was C. lower than
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According to the Keynesian ideas on Aggregate Demand, a macroeconomist would most likely expect business expenditure to increase when ... Group of answer choices a. Interest rates are low and expected returns are low b. Interest rates are high and expected returns are high c. Interest rates are low and expected returns are high d. Interest rates are high and expected returns are low