In the New Keynesian model, the output demand curve represents combinations of
A)the real interest rate and the level of output at which the goods market and the labour market are in equilibrium.
B)the real interest rate and the price level at which the goods market is in equilibrium.
C)the price level and the level of output at which the goods market is in equilibrium.
D)the real interest rate and the level of output at which the goods market is in equilibrium.
E)the price level and the level of output at which the goods market and the labour market are in equilibrium.

Question

Quizplus · Accepted Answer

The output demand curve in the New Keynesian model represents combinations of the real interest rate and the level of output at which the goods market is in equilibrium. This is because the model assumes that prices are sticky in the short run and firms adjust their output to meet demand at a given price level. Therefore, the level of output that firms produce depends on the real interest rate, which affects consumption and investment, as well as other factors that affect aggregate demand. The equilibrium level of output is where the goods market is in equilibrium, meaning that supply equals demand for goods and services. The output demand curve shows the relationship between the real interest rate and the equilibrium level of output.

In the New Keynesian Model, the Output Demand Curve Represents