We have discussed two models that describe the relationship between inflation and economicgrowth. Which of the following is a property of the New Keynesian Model but NOT the RealBusiness Cycle (RBC) Model?a.Monetary policy has no effect on long run economic growthb.Recessions can be caused by a fall in aggregate demand.c.Prices are fully flexible in both the short and long run.d.All the above are properties of the RBC model.e.None of the above are properties of the New Keynesian model.

Answered: We have discussed two models that…

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter14: Money And The Economy

Section: Chapter Questions

Problem 10QP

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We have discussed two models that describe the relationship between inflation and economicgrowth. Which of the following is a property of the New Keynesian Model but NOT the RealBusiness Cycle (RBC) Model?a.Monetary policy has no effect on long run economic growth
b.Recessions can be caused by a fall in aggregate demand.
c.Prices are fully flexible in both the short and long run.
d.All the above are properties of the RBC model.
e.None of the above are properties of the New Keynesian model.

Expert Solution

Step 1

From the given, the recession can be caused by a decrease in the aggregate demand is followed by the property of the new Keynesian approach, but the real Business cycle (RBC) model relies on the shock to the economy.

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