In the Basic New Keynesian Model, When There Is a Liquidity

question 24

Multiple Choice

In the Basic New Keynesian model, when there is a liquidity trap, if the central bank promises higher inflation in the future, then

• A)output rises and inflation falls.
• B)output and inflation stay the same.
• C)output rises and inflation rises.
• D)output falls and inflation falls.
• E)output falls and inflation rises.

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Definitions:

Gram-positive

Refers to bacteria that retain the crystal violet dye used in Gram staining, indicating a thick peptidoglycan layer in their cell walls.

Gram-negative

Bacteria characterized by a thin layer of peptidoglycan in their cell wall, covered by an outer membrane containing lipopolysaccharides; stains pink in Gram staining.

Cyanobacteria

Photosynthetic microorganisms, also known as blue-green algae, that are key players in nitrogen fixation and oxygen production in various ecosystems.

Lichens

Symbiotic associations between a fungus and a photosynthetic partner, typically an alga or cyanobacterium, living together in a mutualistic relationship.