If There Are Total Factor Productivity Shocks in the New

question 26

Multiple Choice

If there are total factor productivity shocks in the New Keynesian model, and the central bank always reduces the output gap to zero,

• A) the New Keynesian model will produce the same data as the real business cycle model.
• B) the New Keynesian model will produce the same data as the real business cycle model only if the central bank pegs the price level in the real business cycle model.
• C) average labour productivity is countercyclical.
• D) employment is countercyclical.
• E) employment is constant.

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