Question 1

New Keynesian economics refers to

Accepted Answer

A)  the monetarist approach. 
B)  models of real business cycles with sticky prices. 
C)  the IS-LM model. 
D)  models that do not support a role for fiscal or monetary policy. 
E)  the work of Milton Friedman. 
A)  the monetarist approach. 
B)  models of real business cycles with sticky prices. 
C)  the IS-LM model. 
D)  models that do not support a role for fiscal or monetary policy. 
E)  the work of Milton Friedman. B

Question 2

According to the New Keynesian model, after a negative shock to output,

Accepted Answer

A)  the government increases expenditures and the central bank decreases its target rate. 
B)  the government increases expenditures and the central bank increases its target rate. 
C)  the government decreases expenditures and the central bank increases its target rate. 
D)  the government decreases expenditures and the central bank decreases its target rate. 
E)  the government leaves expenditures unchanged and the central bank increases its target rate. 
A)  the government increases expenditures and the central bank decreases its target rate. 
B)  the government increases expenditures and the central bank increases its target rate. 
C)  the government decreases expenditures and the central bank increases its target rate. 
D)  the government decreases expenditures and the central bank decreases its target rate. 
E)  the government leaves expenditures unchanged and the central bank increases its target rate. A

Question 3

An increase in the demand for investment goods causes

Accepted Answer

A)  a decrease in real interest rates. 
B)  a decrease in the real wage. 
C)  a rightward shift of the output demand curve. 
D)  an increase in real interest rates. 
E)  a leftward shift of the output demand curve. 
A)  a decrease in real interest rates. 
B)  a decrease in the real wage. 
C)  a rightward shift of the output demand curve. 
D)  an increase in real interest rates. 
E)  a leftward shift of the output demand curve. C

Question 4

In analyzing the fit of the New Keynesian model to the data, it is important to

Accepted Answer

A)  recognize that policy is responding to events in the economy. 
B)  recognize the important contribution of the real business cycle theorists. 
C)  understand that consumption is countercyclical. 
D)  assume that monetary policy is irrelevant. 
E)  understand the role of international trade. 
A)  recognize that policy is responding to events in the economy. 
B)  recognize the important contribution of the real business cycle theorists. 
C)  understand that consumption is countercyclical. 
D)  assume that monetary policy is irrelevant. 
E)  understand the role of international trade.

Question 5

The advantage of government intervention when a shock hits an economy is

Accepted Answer

A)  the real interest rate rises. 
B)  the price level rises. 
C)  the real interest rate remains unchanged. 
D)  an efficient outcome is achieved faster. 
E)  the composition of output changes. 
A)  the real interest rate rises. 
B)  the price level rises. 
C)  the real interest rate remains unchanged. 
D)  an efficient outcome is achieved faster. 
E)  the composition of output changes.

Question 6

In the New Keynesian model, if there are shocks to government spending, and the central bank always reduces the output gap to zero,

Accepted Answer

A)  the model replicates the key business cycle facts. 
B)  consumption is countercyclical. 
C)  employment is countercyclical. 
D)  investment is procyclical. 
E)  the money supply is constant. 
A)  the model replicates the key business cycle facts. 
B)  consumption is countercyclical. 
C)  employment is countercyclical. 
D)  investment is procyclical. 
E)  the money supply is constant.

Question 7

In the New Keynesian model, an increase in the money supply

Accepted Answer

A)  has no effect on the price level. 
B)  causes a less than proportional increase in the price level. 
C)  causes an equiproportional increase in the price level. 
D)  causes a more than proportional increase in the price level. 
E)  causes a reduction in the price level. 
A)  has no effect on the price level. 
B)  causes a less than proportional increase in the price level. 
C)  causes an equiproportional increase in the price level. 
D)  causes a more than proportional increase in the price level. 
E)  causes a reduction in the price level.

Question 8

In the New Keynesian model, an increase in current government spending

Accepted Answer

A)  increases output and leaves the real interest rate unchanged. 
B)  increases output and decreases the real interest rate. 
C)  decreases output and increases the real interest rate. 
D)  decreases output and decreases the real interest rate. 
E)  decreases output and increases the real wage rate. 
A)  increases output and leaves the real interest rate unchanged. 
B)  increases output and decreases the real interest rate. 
C)  decreases output and increases the real interest rate. 
D)  decreases output and decreases the real interest rate. 
E)  decreases output and increases the real wage rate.

Question 9

Negative nominal interest rates work because

Accepted Answer

A)  they cause consumption to go down. 
B)  they are good for banks. 
C)  they act to reduce the output gap. 
D)  they reduce investment. 
E)  nominal interest rates cannot go above zero. 
A)  they cause consumption to go down. 
B)  they are good for banks. 
C)  they act to reduce the output gap. 
D)  they reduce investment. 
E)  nominal interest rates cannot go above zero.

Question 10

Prices may be sticky in the short run because

Accepted Answer

A)  consumers are irrational and do not react fast enough. 
B)  firms are set in their ways of conducting business. 
C)  its too costly for firms to change prices. 
D)  government regulated money prices. 
E)  there is no upward pressure on prices in the market. 
A)  consumers are irrational and do not react fast enough. 
B)  firms are set in their ways of conducting business. 
C)  its too costly for firms to change prices. 
D)  government regulated money prices. 
E)  there is no upward pressure on prices in the market.

Question 11

In 1936, Keynes described his views on the economy in

Accepted Answer

A)  Mr. Keynes and the Classics; A Suggested Interpretation. 
B)  Some Evidence on the Importance of Sticky Prices. 
C)  Essays in Positive Economics. 
D)  The General Theory of Employment, Interest, and Money. 
E)  Macroeconomic Stabilization Policy in Canada. 
A)  Mr. Keynes and the Classics; A Suggested Interpretation. 
B)  Some Evidence on the Importance of Sticky Prices. 
C)  Essays in Positive Economics. 
D)  The General Theory of Employment, Interest, and Money. 
E)  Macroeconomic Stabilization Policy in Canada.

Question 12

Using the New Keynesian model, determine the effects on output, the real interest rate, investment, employment, the price level, and the real wage of an increase in total factor productivity.

Accepted Answer

An increase in current total factor prod

Question 13

In the New Keynesian model, an increase in current total factor productivity shifts the

Accepted Answer

A)  production function up. 
B)  production function to the right. 
C)  output demand curve to the right. 
D)  output demand curve to the left. 
E)  output demand curve and production function to the left. 
A)  production function up. 
B)  production function to the right. 
C)  output demand curve to the right. 
D)  output demand curve to the left. 
E)  output demand curve and production function to the left.

Question 14

If the central bank in a New Keynesian model can always reduce the output gap to zero,

Accepted Answer

A)  the price level will be countercyclical. 
B)  the price level will be procyclical. 
C)  investment will be procyclical if there are total factor productivity shocks. 
D)  consumption will be countercyclical if there are total factor productivity shocks. 
E)  this would be inefficient. 
A)  the price level will be countercyclical. 
B)  the price level will be procyclical. 
C)  investment will be procyclical if there are total factor productivity shocks. 
D)  consumption will be countercyclical if there are total factor productivity shocks. 
E)  this would be inefficient.

Question 15

The output gap is the difference between

Accepted Answer

A)  the market-clearing level of output and the actual level of output, Ym - Y*. 
B)  output demand and output supply. 
C)  nominal output and real output. 
D)  the Bank of Canada's output target and the market-clearing level of output. 
E)  current and future total factor productivity. 
A)  the market-clearing level of output and the actual level of output, Ym - Y*. 
B)  output demand and output supply. 
C)  nominal output and real output. 
D)  the Bank of Canada's output target and the market-clearing level of output. 
E)  current and future total factor productivity.

Question 16

According to the New Keynesian model, in a liquidity trap,

Accepted Answer

A)  fiscal policy is more effective than monetary policy. 
B)  fiscal and monetary policy are equally effective. 
C)  fiscal policy has little role. 
D)  monetary policy is more effective than fiscal policy. 
E)  neither monetary or fiscal policy is effective. 
A)  fiscal policy is more effective than monetary policy. 
B)  fiscal and monetary policy are equally effective. 
C)  fiscal policy has little role. 
D)  monetary policy is more effective than fiscal policy. 
E)  neither monetary or fiscal policy is effective.

Question 17

The New Keynesian model predicts that

Accepted Answer

A)  money is neutral. 
B)  monetary policy causes business cycles. 
C)  monetary policy is not as effective as fiscal policy. 
D)  monetary policy is unobservable and unpredictable. 
E)  Keynesian transmission mechanism for monetary policy is initially through the private sector. 
A)  money is neutral. 
B)  monetary policy causes business cycles. 
C)  monetary policy is not as effective as fiscal policy. 
D)  monetary policy is unobservable and unpredictable. 
E)  Keynesian transmission mechanism for monetary policy is initially through the private sector.

Question 18

In the New Keynesian model, suppose that the output gap is initially zero, there is an increase in money demand, and the central bank wants to keep the output gap at zero. What happens?

Accepted Answer

A)  Output goes up. 
B)  Investment goes down. 
C)  Consumption goes up. 
D)  Money supply goes up. 
E)  Employment goes down. 
A)  Output goes up. 
B)  Investment goes down. 
C)  Consumption goes up. 
D)  Money supply goes up. 
E)  Employment goes down.

Question 19

If there is a liquidity trap in the New Keynesian model then

Accepted Answer

A)  fiscal policy is irrelevant. 
B)  conventional monetary easing works well. 
C)  prices cease to be sticky. 
D)  the nominal interest rate is at its lower bound. 
E)  government spending is trapped. 
A)  fiscal policy is irrelevant. 
B)  conventional monetary easing works well. 
C)  prices cease to be sticky. 
D)  the nominal interest rate is at its lower bound. 
E)  government spending is trapped.

Question 20

A negative nominal interest rate may not be good policy because

Accepted Answer

A)  it makes the output gap go up. 
B)  it makes investment go down. 
C)  could produce inefficiencies in the banking system. 
D)  could produce inefficiencies at Federal Reserve Banks. 
E)  it makes consumers too optimistic, and the economy overheats. 
A)  it makes the output gap go up. 
B)  it makes investment go down. 
C)  could produce inefficiencies in the banking system. 
D)  could produce inefficiencies at Federal Reserve Banks. 
E)  it makes consumers too optimistic, and the economy overheats.

New Keynesian economics refers to

According to the New Keynesian model, after a negative shock to output,

An increase in the demand for investment goods causes

In analyzing the fit of the New Keynesian model to the data, it is important to

The advantage of government intervention when a shock hits an economy is

In the New Keynesian model, if there are shocks to government spending, and the central bank always reduces the output gap to zero,

In the New Keynesian model, an increase in the money supply

In the New Keynesian model, an increase in current government spending

Negative nominal interest rates work because

Prices may be sticky in the short run because

In 1936, Keynes described his views on the economy in

Using the New Keynesian model, determine the effects on output, the real interest rate, investment, employment, the price level, and the real wage of an increase in total factor productivity.

In the New Keynesian model, an increase in current total factor productivity shifts the

If the central bank in a New Keynesian model can always reduce the output gap to zero,

The output gap is the difference between

According to the New Keynesian model, in a liquidity trap,

The New Keynesian model predicts that

In the New Keynesian model, suppose that the output gap is initially zero, there is an increase in money demand, and the central bank wants to keep the output gap at zero. What happens?

If there is a liquidity trap in the New Keynesian model then

A negative nominal interest rate may not be good policy because

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: 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

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters

Exam 14: New Keynesian Economics: Sticky Prices

New Keynesian economics refers to

According to the New Keynesian model, after a negative shock to output,

An increase in the demand for investment goods causes

In analyzing the fit of the New Keynesian model to the data, it is important to

The advantage of government intervention when a shock hits an economy is

In the New Keynesian model, if there are shocks to government spending, and the central bank always reduces the output gap to zero,

In the New Keynesian model, an increase in the money supply

In the New Keynesian model, an increase in current government spending

Negative nominal interest rates work because

Prices may be sticky in the short run because

In 1936, Keynes described his views on the economy in

Using the New Keynesian model, determine the effects on output, the real interest rate, investment, employment, the price level, and the real wage of an increase in total factor productivity.

In the New Keynesian model, an increase in current total factor productivity shifts the

If the central bank in a New Keynesian model can always reduce the output gap to zero,

The output gap is the difference between

According to the New Keynesian model, in a liquidity trap,

The New Keynesian model predicts that

In the New Keynesian model, suppose that the output gap is initially zero, there is an increase in money demand, and the central bank wants to keep the output gap at zero. What happens?

If there is a liquidity trap in the New Keynesian model then

A negative nominal interest rate may not be good policy because

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: 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

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: A Deeper Look

Filters