Midterm 3 - Notes on Practice Qs (3)

Question 1

In the equilibrium of the simple sticky-price New Keynesian model, an increase in current productivity causes aggregate saving to increase.

T/F

Answer 1

False

Question 2

What is aggregate saving?

Answer 2

Question 3

what is the simple sticky-price New Keynesian model

Answer 3

basic macro model used to describe the short run when prices do not adjust immediately.

• households still make optimizing choices
• firms still make optimizing choices
• but firms cannot instantly change prices
• so the **economy may not respond to shocks the same way **it would in a fully flexible-price model

Question 4

Why is it called “New Keynesian”?

Answer 4

Question 5

What makes the model “simple”?

Answer 5

Question 6

Main characteristics of the simple sticky-price NK model

Answer 6

Question 7

How do NK characteristics contrast w neoclassical model?

Answer 7

Neoclassical:

Supply matters a lot

Simple sticky-price NK:

Demand matters a lot

Question 8

in the simple sticky-price NK model, a supply shock like higher productivity does not change:

Answer 8