Multiple Choice
In the Basic New Keynesian model, if the central bank is initially achieving its goals, and the natural rate of interest rises, the central bank should
A) reduce the nominal interest rate by the amount of the natural real interest rate increase.
B) reduce the nominal interest rate by less than the amount of the natural real interest rate increase.
C) do nothing.
D) increase the nominal interest rate by the amount of the natural real interest rate increase.
E) increase the nominal interest rate by less than the amount of the natural real rate of interest increase.
Correct Answer:
Verified
Correct Answer:
Verified
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