Under fiscal stabilization policy in the New Keynesian model, after a positive shock to output,
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 2
Suppose that a machine costs 10,000 in constant dollars and the real rate of interest is 12 percent.
If the machine is expected to increase in price by 2 percent and the rate of depreciation is 5 percent, then the user cost of capital for that machine over one year is equal to ________. A) 150
B) 1,500
C) 10,000
D) 102,500
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