In the basic New Keynesian model, suppose that there is an increase in the future marginal product of capital. Assume that the central bank has a quadratic loss function. a. If the central bank does nothing, then current inflation will and current output will decrease. increase. not change.

In the basic New Keynesian model, suppose that there is an increase in the future marginal product of capital. Assume that the central bank has a quadratic loss function. a. If the central bank does nothing, then current inflation will and current output will decrease. increase. not change.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter11: Fiscal Policy: The Keynesian View And Historical Development Of Macroeconomics

Section: Chapter Questions

Problem 6CQ

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Question

In the basic New Keynesian model, suppose that there is an increase in the future marginal product of capital. Assume that the central bank has a quadratic loss function.
a. If the central bank does nothing, then current inflation will
and current output will
decrease.
increase.
not change.

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