In the New Keynesian Model, Suppose That the Output Gap

question 18

Multiple Choice

In the New Keynesian model, suppose that the output gap is initially zero, there is an increase in money demand, and the central bank wants to keep the output gap at zero. What happens?

• A) Output goes up.
• B) Investment goes down.
• C) Consumption goes up.
• D) Money supply goes up.
• E) Employment goes down.