Suppose Real Output Falls in the Aggregate Economy

question 5

Multiple Choice

Suppose real output falls in the aggregate economy. Which is correct?

• A) A real business cycle theorist thinks that there was a negative shock to total factor productivity, and that the government should therefore increase expenditures.
• B) A New Keynesian thinks that the output gap has fallen, and central bank's interest rate target should rise.
• C) A real business cycle theorist thinks that total factor productivity has risen, and that the government should do nothing .
• D) none of the above.

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