Answer to Question #193199 in Macroeconomics for Row

Question

Q) In the intertemporal New Keynesian model that we have seen in the course, assume that prices are constant current period, and the central bank sets an interest rate target. Which is true?

a) The central bank always perfectly controls the money demand

b) Shocks always cause the economy to fall below the natural level of output

c) Money supply can be used by the central bank to keep the price level constant in the current period d) Assuming monetary policy does not change, a temporary increase in government spending in the current period has a higher fiscal multiplier than in the flexible prices intertemporal model

e) Assuming monetary policy does not change, a temporary increase in government spending in the current period has a lower fiscal multiplier than in the flexible prices intertemporal model

Answer 1

d) Assuming monetary policy does not change, a temporary increase in government spending in the current period has a higher fiscal multiplier than in the flexible prices intertemporal model