In the New Keynesian Model, If There Are Shocks to Government

question 6

Multiple Choice

In the New Keynesian model, if there are shocks to government spending, and the central bank always reduces the output gap to zero,

• A) the model replicates the key business cycle facts.
• B) consumption is countercyclical.
• C) employment is countercyclical.
• D) investment is procyclical.
• E) the money supply is constant.

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