Question 1

The New Keynesian transmission mechanism for monetary policy is characterized by

Accepted Answer

A)  helicopter drops of money. 
B)  money having an impact on the real interest rate. 
C)  banks using money injections for business loans. 
D)  the government buying goods with fresh money. 
A)  helicopter drops of money. 
B)  money having an impact on the real interest rate. 
C)  banks using money injections for business loans. 
D)  the government buying goods with fresh money. B

Question 2

In the New Keynesian model,the stabilization effects of fiscal and monetary policy are different because

Accepted Answer

A)  the effects on the composition of output are different. 
B)  monetary policy does not work in a liquidity trap, but fiscal policy does. 
C)  monetary policy affects spending on goods indirectly; fiscal policy affects spending directly. 
D)  all of the above. 
A)  the effects on the composition of output are different. 
B)  monetary policy does not work in a liquidity trap, but fiscal policy does. 
C)  monetary policy affects spending on goods indirectly; fiscal policy affects spending directly. 
D)  all of the above. D

Question 3

According to New Keynesian theory,fluctuations in the target interest rate are not a good explanation of the business cycle because the model predicts that

Accepted Answer

A)  consumption is constant. 
B)  labor is countercyclical. 
C)  average labor productivity is countercyclical. 
D)  output is countercyclical. 
A)  consumption is constant. 
B)  labor is countercyclical. 
C)  average labor productivity is countercyclical. 
D)  output is countercyclical. C

Question 4

What fundamental problem does the New Keynesian model have,when compared to the data?

Accepted Answer

A)  Investment fluctuates more than consumption. 
B)  The real wage moves too little. 
C)  Aggregate output demand does not matter. 
D)  Prices do not fluctuate in the right way. 
A)  Investment fluctuates more than consumption. 
B)  The real wage moves too little. 
C)  Aggregate output demand does not matter. 
D)  Prices do not fluctuate in the right way.

Question 5

Suppose real output falls in the aggregate economy. Which is correct?

Accepted Answer

A)  A real business cycle theorist thinks that there was a negative shock to total factor productivity, and that the government should therefore increase expenditures. 
B)  A New Keynesian thinks that the output gap has fallen, and central bank's interest rate target should rise. 
C)  A real business cycle theorist thinks that total factor productivity has risen, and that the government should do nothing . 
D)  none of the above. 
A)  A real business cycle theorist thinks that there was a negative shock to total factor productivity, and that the government should therefore increase expenditures. 
B)  A New Keynesian thinks that the output gap has fallen, and central bank's interest rate target should rise. 
C)  A real business cycle theorist thinks that total factor productivity has risen, and that the government should do nothing . 
D)  none of the above.

Question 6

Stabilization policy is policy that seeks to

Accepted Answer

A)  get zero inflation. 
B)  eliminate fluctuations. 
C)  eradicate unemployment. 
D)  maximize output. 
A)  get zero inflation. 
B)  eliminate fluctuations. 
C)  eradicate unemployment. 
D)  maximize output.

Question 7

Why is it difficult to determine whether fluctuations in the target interest rate have led to business cycle fluctuations in the United States,according to the New Keynesian model?

Accepted Answer

A)  Because the Federal Reserve may change the target interest rate according to economic conditions. 
B)  Because the target interest rate is nominal, not real. 
C)  Because inflation is not well measured. 
D)  Because money is neutral. 
A)  Because the Federal Reserve may change the target interest rate according to economic conditions. 
B)  Because the target interest rate is nominal, not real. 
C)  Because inflation is not well measured. 
D)  Because money is neutral.

Question 8

The central bank in the New Keynesian model pursues a policy of

Accepted Answer

A)  fixed money supply. 
B)  inflation between 2 and 3%. 
C)  zero inflation. 
D)  targeting the market interest rate. 
A)  fixed money supply. 
B)  inflation between 2 and 3%. 
C)  zero inflation. 
D)  targeting the market interest rate.

Question 9

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

Accepted Answer

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. 
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.

Question 10

In response to a positive technology shock,which prediction of the sticky price model is difficult to reconcile with the data?

Accepted Answer

A)  Output increases. 
B)  Employment decreases. 
C)  The price level decreases. 
D)  Money is procyclical. 
A)  Output increases. 
B)  Employment decreases. 
C)  The price level decreases. 
D)  Money is procyclical.

Question 11

In the New Keynesian model,the central bank achieves its interest rate target.

Accepted Answer

A)  by announcing it. 
B)  by closing the output gap. 
C)  through money growth targeting. 
D)  by the supplying the quantity of money demanded at the target interest rate. 
A)  by announcing it. 
B)  by closing the output gap. 
C)  through money growth targeting. 
D)  by the supplying the quantity of money demanded at the target interest rate.

Question 12

A classical objection to Keynesian sticky price models is that

Accepted Answer

A)  it is easier for firms to change prices rather than change output. 
B)  it is cheaper for firms to change output rather than change prices. 
C)  sticky price models are internally inconsistent. 
D)  real shocks are more important than nominal shocks. 
A)  it is easier for firms to change prices rather than change output. 
B)  it is cheaper for firms to change output rather than change prices. 
C)  sticky price models are internally inconsistent. 
D)  real shocks are more important than nominal shocks.

Question 13

Total factor productivity shocks are not a good explanation of economic fluctuations in the New Keynesian model for all the following reasons except

Accepted Answer

A)  they do not generate output fluctuations. 
B)  employment drops when TFP increases. 
C)  the real wage drops when TFP increases. 
D)  they do not generate price fluctuations. 
A)  they do not generate output fluctuations. 
B)  employment drops when TFP increases. 
C)  the real wage drops when TFP increases. 
D)  they do not generate price fluctuations.

Question 14

In the New Keynesian model,

Accepted Answer

A)  money is neutral. 
B)  money is fixed. 
C)  monetary policy has a real impact. 
D)  prices are countercyclical. 
A)  money is neutral. 
B)  money is fixed. 
C)  monetary policy has a real impact. 
D)  prices are countercyclical.

Question 15

Menu costs are

Accepted Answer

A)  very small costs. 
B)  the cost of differentiating prices for different goods. 
C)  the relative cost of raw materials compared to finished goods. 
D)  the cost of changing prices. 
A)  very small costs. 
B)  the cost of differentiating prices for different goods. 
C)  the relative cost of raw materials compared to finished goods. 
D)  the cost of changing prices.

Question 16

What do we need to assume about firms in the sticky price model?

Accepted Answer

A)  They accommodate any demand at the given price. 
B)  They hire until the real wage equals the average labor productivity. 
C)  They maximize only current profits. 
D)  They adapt the price to current conditions. 
A)  They accommodate any demand at the given price. 
B)  They hire until the real wage equals the average labor productivity. 
C)  They maximize only current profits. 
D)  They adapt the price to current conditions.

Question 17

If prices in the New Keynesian model were perfectly flexible,then

Accepted Answer

A)  there would be a role for monetary policy. 
B)  the output gap would be positive. 
C)  the equilibrium real interest rate would be the natural rate of interest. 
D)  the output gap would be negative. 
A)  there would be a role for monetary policy. 
B)  the output gap would be positive. 
C)  the equilibrium real interest rate would be the natural rate of interest. 
D)  the output gap would be negative.

Question 18

Why are aggregate demand shocks not a good explanation of business cycles in the New Keynesian model?

Accepted Answer

A)  The wage is not constant. 
B)  Employment does not fluctuate. 
C)  Prices in the model are procyclical. 
D)  Consumption is not procyclical. 
A)  The wage is not constant. 
B)  Employment does not fluctuate. 
C)  Prices in the model are procyclical. 
D)  Consumption is not procyclical.

Question 19

A central bank can bring output back up to efficient level in the New Keynesian model by

Accepted Answer

A)  decreasing the money supply. 
B)  increasing the money supply. 
C)  decreasing government expenses. 
D)  increasing government expenses. 
A)  decreasing the money supply. 
B)  increasing the money supply. 
C)  decreasing government expenses. 
D)  increasing government expenses.

Question 20

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

Accepted Answer

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. 
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.

The New Keynesian transmission mechanism for monetary policy is characterized by

In the New Keynesian model,the stabilization effects of fiscal and monetary policy are different because

According to New Keynesian theory,fluctuations in the target interest rate are not a good explanation of the business cycle because the model predicts that

What fundamental problem does the New Keynesian model have,when compared to the data?

Suppose real output falls in the aggregate economy. Which is correct?

Stabilization policy is policy that seeks to

Why is it difficult to determine whether fluctuations in the target interest rate have led to business cycle fluctuations in the United States,according to the New Keynesian model?

The central bank in the New Keynesian model pursues a policy of

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

In response to a positive technology shock,which prediction of the sticky price model is difficult to reconcile with the data?

In the New Keynesian model,the central bank achieves its interest rate target.

A classical objection to Keynesian sticky price models is that

Total factor productivity shocks are not a good explanation of economic fluctuations in the New Keynesian model for all the following reasons except

In the New Keynesian model,

Menu costs are

What do we need to assume about firms in the sticky price model?

If prices in the New Keynesian model were perfectly flexible,then

Why are aggregate demand shocks not a good explanation of business cycles in the New Keynesian model?

A central bank can bring output back up to efficient level in the New Keynesian model by

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

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

The New Keynesian transmission mechanism for monetary policy is characterized by

In the New Keynesian model,the stabilization effects of fiscal and monetary policy are different because

According to New Keynesian theory,fluctuations in the target interest rate are not a good explanation of the business cycle because the model predicts that

What fundamental problem does the New Keynesian model have,when compared to the data?

Suppose real output falls in the aggregate economy. Which is correct?

Stabilization policy is policy that seeks to

Why is it difficult to determine whether fluctuations in the target interest rate have led to business cycle fluctuations in the United States,according to the New Keynesian model?

The central bank in the New Keynesian model pursues a policy of

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

In response to a positive technology shock,which prediction of the sticky price model is difficult to reconcile with the data?

In the New Keynesian model,the central bank achieves its interest rate target.

A classical objection to Keynesian sticky price models is that

Total factor productivity shocks are not a good explanation of economic fluctuations in the New Keynesian model for all the following reasons except

In the New Keynesian model,

Menu costs are

What do we need to assume about firms in the sticky price model?

If prices in the New Keynesian model were perfectly flexible,then

Why are aggregate demand shocks not a good explanation of business cycles in the New Keynesian model?

A central bank can bring output back up to efficient level in the New Keynesian model by

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

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