If prices in the New Keynesian model were perfectly flexible,then

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In the New Keynesian model, the equilibrium real interest rate is equal to the natural rate of interest when prices are perfectly flexible. This means that there would be no need for monetary policy, as the economy would always be at its natural rate of output and full employment level, with no output gap. Therefore, options A and D are incorrect, and option B does not specify whether the output gap would be positive or negative.

If Prices in the New Keynesian Model Were Perfectly Flexible,then