Question 1

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

Accepted Answer

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. 
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.

Question 2

Under monetary stabilization policy in the New Keynesian model,following a drop in output,the central bank should

Accepted Answer

A)  increase the price level. 
B)  decrease the price level. 
C)  increase the interest rate. 
D)  decrease the interest rate. 
A)  increase the price level. 
B)  decrease the price level. 
C)  increase the interest rate. 
D)  decrease the interest rate.

Question 3

To support the argument for an active role for government in stabilizing the economy,it must be true that

Accepted Answer

A)  consumers are not rational and that not all wages and prices are flexible. 
B)  not all wages and prices are flexible and that government must be able to react quickly enough. 
C)  government must be able to react quickly enough and that shocks to the economy be primarily due to aggregate supply shocks. 
D)  shocks to the economy be primarily due to aggregate supply shocks and that consumers are not rational. 
A)  consumers are not rational and that not all wages and prices are flexible. 
B)  not all wages and prices are flexible and that government must be able to react quickly enough. 
C)  government must be able to react quickly enough and that shocks to the economy be primarily due to aggregate supply shocks. 
D)  shocks to the economy be primarily due to aggregate supply shocks and that consumers are not rational.

Question 4

Active stabilization policy can be rationalized in the New Keynesian model because

Accepted Answer

A)  it makes it possible to obtain zero inflation. 
B)  the government knows best. 
C)  it counteracts the influence of unions. 
D)  it allows a faster return to economic efficiency. 
A)  it makes it possible to obtain zero inflation. 
B)  the government knows best. 
C)  it counteracts the influence of unions. 
D)  it allows a faster return to economic efficiency.

Question 5

Fluctuations in the target interest rate in the New Keynesian model lead to all of the following except

Accepted Answer

A)  procyclical real wages. 
B)  procyclical employment. 
C)  countercyclical prices. 
D)  procyclical consumption. 
A)  procyclical real wages. 
B)  procyclical employment. 
C)  countercyclical prices. 
D)  procyclical consumption.

Question 6

A price may be sticky because

Accepted Answer

A)  of monetary policy. 
B)  of menu costs. 
C)  of total factor productivity shocks. 
D)  of the monetary illusion. 
A)  of monetary policy. 
B)  of menu costs. 
C)  of total factor productivity shocks. 
D)  of the monetary illusion.

Question 7

Consider two alternative worlds: (i)the world works according the real business cycle model,and the central bank acts to stabilize the price level; (ii)the world works according to the New Keynesian sticky price model,and the central bank acts to make the output gap zero. Which is correct?

Accepted Answer

A)  We would prefer to live in world (ii). 
B)  We would prefer to live in world (i). 
C)  The data cannot tell us whether we are living in world (i) or world (ii). 
D)  in either world, the central bank is irrelevant. 
A)  We would prefer to live in world (ii). 
B)  We would prefer to live in world (i). 
C)  The data cannot tell us whether we are living in world (i) or world (ii). 
D)  in either world, the central bank is irrelevant.

Question 8

Under a liquidity trap in the New Keynesian model,

Accepted Answer

A)  prices cannot be sticky. 
B)  monetary policy is ineffective. 
C)  the economy is always efficient. 
D)  fiscal policy is ineffective. 
A)  prices cannot be sticky. 
B)  monetary policy is ineffective. 
C)  the economy is always efficient. 
D)  fiscal policy is ineffective.

Question 9

Stabilization policy is to be applied if all of the following applies except

Accepted Answer

A)  authorities have good information about the state of the economy. 
B)  policies can be applied quickly. 
C)  markets are out of equilibrium. 
D)  there is no output gap. 
A)  authorities have good information about the state of the economy. 
B)  policies can be applied quickly. 
C)  markets are out of equilibrium. 
D)  there is no output gap.

Question 10

A money supply increase in the New Keynesian model is not neutral because

Accepted Answer

A)  consumers are fooled into working harder. 
B)  the real interest falls, the quantity of output demanded rises, and firms supply more output. 
C)  productivity rises, increasing output supply. 
D)  bank lending rises. 
A)  consumers are fooled into working harder. 
B)  the real interest falls, the quantity of output demanded rises, and firms supply more output. 
C)  productivity rises, increasing output supply. 
D)  bank lending rises.

Question 11

Suppose that there is an increase in the demand for money. What is the appropriate monetary policy response in the New Keynesian sticky price model?

Accepted Answer

A)  an increase in the interest rate target 
B)  no change in the interest rate target 
C)  a decrease in the interest rate target 
D)  an increase in government spending 
A)  an increase in the interest rate target 
B)  no change in the interest rate target 
C)  a decrease in the interest rate target 
D)  an increase in government spending

Question 12

The output gap is

Accepted Answer

A)  the difference between target output and realized output. 
B)  the difference between initial output and final output. 
C)  the difference between market-clearing output and actual output. 
D)  the difference between forecasted output and past output. 
A)  the difference between target output and realized output. 
B)  the difference between initial output and final output. 
C)  the difference between market-clearing output and actual output. 
D)  the difference between forecasted output and past output.

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

Under monetary stabilization policy in the New Keynesian model,following a drop in output,the central bank should

To support the argument for an active role for government in stabilizing the economy,it must be true that

Active stabilization policy can be rationalized in the New Keynesian model because

Fluctuations in the target interest rate in the New Keynesian model lead to all of the following except

A price may be sticky because

Consider two alternative worlds: (i)the world works according the real business cycle model,and the central bank acts to stabilize the price level; (ii)the world works according to the New Keynesian sticky price model,and the central bank acts to make the output gap zero. Which is correct?

Under a liquidity trap in the New Keynesian model,

Stabilization policy is to be applied if all of the following applies except

A money supply increase in the New Keynesian model is not neutral because

Suppose that there is an increase in the demand for money. What is the appropriate monetary policy response in the New Keynesian sticky price model?

The output gap is

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: The Work-Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

A Two-Period Model: The Consumption-Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking

Inflation, the Phillips Curve, and Central Bank Commitment

Filters

Exam 14: New Keynesian Economics: Sticky Prices

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

Under monetary stabilization policy in the New Keynesian model,following a drop in output,the central bank should

To support the argument for an active role for government in stabilizing the economy,it must be true that

Active stabilization policy can be rationalized in the New Keynesian model because

Fluctuations in the target interest rate in the New Keynesian model lead to all of the following except

A price may be sticky because

Consider two alternative worlds: (i)the world works according the real business cycle model,and the central bank acts to stabilize the price level; (ii)the world works according to the New Keynesian sticky price model,and the central bank acts to make the output gap zero. Which is correct?

Under a liquidity trap in the New Keynesian model,

Stabilization policy is to be applied if all of the following applies except

A money supply increase in the New Keynesian model is not neutral because

Suppose that there is an increase in the demand for money. What is the appropriate monetary policy response in the New Keynesian sticky price model?

The output gap is

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: The Work-Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

A Two-Period Model: The Consumption-Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking

Inflation, the Phillips Curve, and Central Bank Commitment

Filters