New Keynesian Model

Question 1

What makes the equilibrium in the RBC and NK models, ”competitive”?
A) Technology shocks
B) Prices are set by market forces
C) Absence of externalities
D) Absence of government

Answer 1

B) Prices are set by market forces

Question 2

Firms have market power over consumers in the NK model. This is because:
A) The monetary authority controls interest rates
B) Prices are sticky
C) Money enters the utility function
D) There is Imperfect elasticity of substitution between goods

Answer 2

D) There is Imperfect elasticity of substitution between goods

Question 3

According to Ball and Mankiw (1995) when is an economy expected to
experience deflation?
A) After a positive productivity shock
B) After a decrease in taxes
C) If the distribution of price shocks is asymmetric
D) If there is excess demand for goods and services

Answer 3

C) If the distribution of price shocks is asymmetric