In the New Keynesian View, Expected Changes in Monetary Policy

question 60

Multiple Choice

In the new Keynesian view, expected changes in monetary policy can affect output in the short run because

• A)agents do not have rational expectations.
• B)prices are sticky.
• C)business firms rarely pay attention to policy announcements.
• D)they directly increase the funds available for businesses and consumers to spend.

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Definitions:

Pareto Optimality

A situation where resources are distributed in such a way that improving the situation of any single person would lead to the detriment of at least one other person.

Voluntary Exchange

An economic transaction where parties trade goods or services by mutual agreement without coercion.

Maximizing Profits

The process or strategy of adjusting production or operation dimensions to achieve the greatest possible financial return.

Potentially Efficient

A situation where a system or process has the capability to achieve optimal productivity, but currently may not be doing so.