In the Smets-Wouters DSGE Model, ________ When There Is an Increase

Multiple Choice

In the Smets-Wouters DSGE model, ________ when there is an increase in government spending because ________.

A) consumption falls; more government spending today means higher taxes later
B) consumption rises; more workers are attracted to higher nominal wages
C) inflation falls; prices are sticky
D) consumption falls; the natural rate of unemployment falls
E) None of these answers are correct.