In the basic New Keynesian model, if the central bank is initially achieving its goals, and the natural rate of interest rises, the central bank should A. increase the nominal interest rate by the amount of the natural real interest rate increase. B. reduce the nominal interest rate by the amount of the natural real interest rate increase. C. increase the nominal interest rate by less than the amount of the natural real rate of interest increase. D. reduce the nominal interest rate by less than the amount of the natural real interest rate increase. E. do nothing
In the basic New Keynesian model, if the central bank is initially achieving its goals, and the natural rate of interest rises, the central bank should A. increase the nominal interest rate by the amount of the natural real interest rate increase. B. reduce the nominal interest rate by the amount of the natural real interest rate increase. C. increase the nominal interest rate by less than the amount of the natural real rate of interest increase. D. reduce the nominal interest rate by less than the amount of the natural real interest rate increase. E. do nothing
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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In the basic New Keynesian model, if the central bank is initially achieving its goals, and the natural rate of interest rises, the central bank should
increase the nominal interest rate by the amount of the natural real interest rate increase.
reduce the nominal interest rate by the amount of the natural real interest rate increase.
increase the nominal interest rate by less than the amount of the natural real rate of interest increase.
reduce the nominal interest rate by less than the amount of the natural real interest rate increase.
do nothing
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