Author Question: According to New Keynesian theory, fluctuations in the target interest rate are not a good ... (Read 55 times)

K@ · **on:** Jun 30, 2018

According to New Keynesian theory, fluctuations in the target interest rate are not a good explanation of the business cycle because the model predicts that

A) consumption is constant.
B) labor is countercyclical.
C) average labor productivity is countercyclical.
D) output is countercyclical.

Question 2

Refer to Figure 12.3. Suppose the economy is initially at full employment with real GDP equal to potential GDP, and the Fed does not target interest rates, allowing the real interest rate to change like it did during the Great Depression.

This would be reflected as a movement from ________ in the IS-MP model and ________ the Phillips curve. A) point Y to point X; a movement up
B) point X to point Y; a movement down
C) point Z to point Y; a movement up
D) point Y to point Z; a movement down