Investment Demand Shocks in the New Keynesian Model Are Not

question 9

Multiple Choice

Investment demand shocks in the New Keynesian model are not a likely explanation of the typical business cycle,because the model counterfactually predicts that

• A) consumption is procyclical, investment is procyclical, and average labour productivity is countercyclical.
• B) prices are procyclical, the real wage is countercyclical, and average labour productivity is countercyclical.
• C) prices are countercyclical, the real wage is countercyclical, and average labour productivity is countercyclical.
• D) employment is procyclical, prices are procyclical, and average labour productivity is countercyclical.
• E) employment is procyclical, employment is procyclical, and average labour productivity is countercyclical.

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Definitions:

Fixed Manufacturing Overhead

Costs that do not change with the level of production, including salaries, rent, and insurance.

Labor Efficiency Variance

A discrepancy between the actual working hours and the expected standard hours, multiplied by the predetermined salary rate.

Direct Labor Standards

Direct labor standards are predetermined measures for the amount of labor time and cost that should be associated with producing a unit of product or performing a service.

Standard Cost Variances

The differences between the actual costs and the standard costs for manufacturing or service processes, used to control and manage expenses.