Which of the Following Is True When a Financial Friction

question 8

Multiple Choice

Which of the following is true when a financial friction is included in the Smets-Wouters DSGE model?
i. Consumption rises
ii. Investment rises
iii. Inflation falls

• A) iii
• B) i
• C) i and ii
• D) ii
• E) i and iii

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Definitions:

National Science Foundation

A US government agency that supports fundamental research and education in all the non-medical fields of science and engineering.

Research

The systematic investigation into and study of materials, sources, etc., in order to establish facts and reach new conclusions.

Investment

The allocation of resources, such as capital or time, in the expectation of receiving future benefits such as income or growth.

Reciprocal Determinism

A concept in psychology positing that a person's behavior both influences and is influenced by personal factors and the social environment.