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In the Basic New Keynesian Model, If Anticipated Future Inflation

Question 3

Multiple Choice

In the Basic New Keynesian model, if anticipated future inflation increases, the central bank should


A) hold the nominal interest rate constant.
B) increase the nominal interest rate one-for-one with the decrease in the anticipated future inflation rate.
C) reduce the nominal interest rate one-for-one with the decrease in the anticipated future inflation rate.
D) increase the nominal interest rate less than one-for-one with the decrease in the anticipated future inflation rate.
E) reduce the nominal interest rate less than one-for-one with the decrease in the anticipated future inflation rate.

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