In the Smets-Wouters DSGE Model, ________ When There Is an Increase

question 70

Multiple Choice

In the Smets-Wouters DSGE model, ________ when there is an increase in government spending because ________.

• A) consumption falls; more government spending today means higher taxes later
• B) consumption rises; more workers are attracted to higher nominal wages
• C) inflation falls; prices are sticky
• D) consumption falls; the natural rate of unemployment falls
• E) None of these answers is correct.

---

Definitions:

Trade Surplus

Occurs when a country's exports exceed its imports during a specific time period, indicating a positive balance of trade.

Exports

Goods or services sent from one country to another for sale or trade.

Imports

Goods or services brought into one country from another for the purpose of sale or trade.

Exchange Rate Risk

The potential for loss due to fluctuations in the exchange rate between two currencies in international finance.