
Suppose real output falls in the aggregate economy. Which is correct?
A) A real business cycle theorist thinks that there was a negative shock to total factor productivity, and that the government should therefore increase expenditures.
B) A New Keynesian thinks that the output gap has fallen, and central bank's interest rate target should rise.
C) A real business cycle theorist thinks that total factor productivity has risen, and that the government should do nothing .
D) none of the above.
Correct Answer:
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