Multiple Choice
In the New Keynesian open economy model with a flexible exchange rate, suppose that the output gap is initially zero and there is an increase in labour supply. What is the correct policy response
To keep the output gap at zero?
A) Increase the money supply.
B) Reduce the money supply.
C) Nothing.
D) Reduce government spending.
E) Increase government spending.
Correct Answer:
Verified
Correct Answer:
Verified
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