In the new Keynesian model,an expansionary monetary policy will
A)not cause aggregate output to increase,even if the policy is unanticipated.
B)have a greater effect on aggregate output if the policy is unanticipated.
C)have a greater effect on aggregate output if the policy is anticipated.
D)have no effect on the price level.

Question

Quizplus · Accepted Answer

The new Keynesian model suggests that an expansionary monetary policy, when unanticipated, can have a greater effect on aggregate output than when anticipated. This is because when the policy is unanticipated, individuals and firms may not have had enough time to adjust their behavior and expectations, leading to a stronger response to the policy. However, the policy is still expected to have some effect even if it is anticipated. The model also suggests that an expansionary monetary policy may lead to a temporary increase in the price level.

In the New Keynesian Model,an Expansionary Monetary Policy Will