In the New Keynesian Model, an Increase in Current Total

question 13

Multiple Choice

In the New Keynesian model, an increase in current total factor productivity shifts the

• A) production function up.
• B) production function to the right.
• C) output demand curve to the right.
• D) output demand curve to the left.
• E) output demand curve and production function to the left.

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Definitions:

Total Utility

The total satisfaction received from consuming a certain amount of goods or services.

Marginal Rate of Substitution

The rate at which a consumer is willing to give up one good in exchange for another good, while keeping overall utility constant.

Substitution Effect

A shift in consumer behavior as a result of alterations in the comparative costs of products, resulting in the replacement of one product for another.

Indifference Curves

Graphical representations in economics showing different combinations of two goods that give a consumer equal satisfaction and utility, thus marking consumer preferences.