Under Fiscal Stabilization Policy in the New Keynesian Model,after a Negative

question 20

Multiple Choice

Under fiscal stabilization policy in the New Keynesian model,after a negative shock to output,

• A) the government increases expenditures and the central bank increases the money supply.
• B) the government increases expenditures and the central bank decreases the money supply.
• C) the government decreases expenditures and the central bank increases the money supply.
• D) the government decreases expenditures and the central bank decreases the money supply.

---

Definitions:

Price Support Program

Government or organizational policies aimed at maintaining the market price of a product or commodity at a certain level to support producers.

Efficiency Loss

A reduction in economic efficiency, often resulting from market distortions such as taxes or subsidies, leading to a loss of societal welfare.

Taxpayers' Burden

The financial obligation imposed on taxpaying citizens by government spending and debt, often reflected in the taxes they must pay.

Supply and Demand

Supply and Demand is a fundamental economic model that describes how prices and quantities are determined in a market system.