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

Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter25: The Keynesian Perspective
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Problem 1SCQ: In the Keynesian framework, which of the following events might cause a recession? Which might cause...
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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
 
 
 
 
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
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