In the New Keynesian Model,if There Is a Decrease in Anticipated

question 21

Multiple Choice

In the New Keynesian model,if there is a decrease in anticipated future total factor productivity,then

• A) there should be no change in monetary or fiscal policy.
• B) the central bank's interest rate target should be increased.
• C) government spending should fall, and the central bank's interest rate target should rise.
• D) government spending should increase.

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Definitions:

Aggregate Demand-Aggregate Supply Model

A macroeconomic model that explains price level and output through the relationship between aggregate demand and aggregate supply.

Long-Run Equilibrium

Refers to a state in an economy where all factors of production are efficiently utilized, and supply equals demand, leading to stable prices and full employment over time.

Money Supply

The aggregate financial resources present in an economy at a given time, which include currency, coinage, and the deposits in both current and savings accounts.

Tax Rate

The percentage at which an individual or corporation is taxed, which can vary depending on income level, type of good, or service.