In keeping with the New Keynesian model, the European Central Bank
A)changes policy unexpectedly.
B)increases the money supply at a steady rate.
C)seeks to fine tune small changes in economy activity.
D)seeks to maintain credibility as an inflation fighter.

Question

Quizplus · Accepted Answer

The New Keynesian model emphasizes the importance of central bank credibility in anchoring inflation expectations. Therefore, the European Central Bank seeks to maintain credibility as an inflation fighter by consistently implementing policies aimed at achieving its inflation target.

In Keeping with the New Keynesian Model, the European Central