In Analyzing the Fit of the New Keynesian Model to the Data

question 4

Multiple Choice

In analyzing the fit of the New Keynesian model to the data, it is important to

• A) recognize that policy is responding to events in the economy.
• B) recognize the important contribution of the real business cycle theorists.
• C) understand that consumption is countercyclical.
• D) assume that monetary policy is irrelevant.
• E) understand the role of international trade.

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Definitions:

Illusory Promise

An illusory promise is a statement that resembles a promise but does not actually commit the speaker to any action or obligation, making it unenforceable as a contract.

Preexisting Duty

An obligation that a party is already legally required to perform, which cannot serve as valid consideration for a new contract.

Valid Consideration

Something of value exchanged between parties in a contract, which is necessary for the contract to be legally enforceable.

Unilateral Contract

An agreement in which one party makes a promise in exchange for the other party's action but does not require a reciprocal promise to act.