You Are a Recent Hire at the Labor Department and Are

Multiple Choice

You are a recent hire at the Labor Department and are asked to assess monetary policy's effects on labor markets using a stylized DSGE model with sticky prices. You read the Fed's policy statement, and given the negative output gap it decides to ________, which would ________ and ________.

A) reduce taxes; reduce labor demand; push real wages down
B) increase the FFR; reduce consumption; shift labor supply out
C) use a fiscal expansion; lower taxes today; increase taxes in the future
D) change inflationary expectations; raise the target inflation rate; raise real wages
E) reduce the FFR; increase labor demand; push real wages up