The New Keynesian model and the monetary intertemporal model are essentially identical EXCEPT that
A)nominal and real interest rates are permitted to fluctuate.
B)Bank of Canada policy is restricted.
C)total factor productivity is neutral.
D)the price level is not sufficiently flexible for the goods market to clear in the short run.
E)money is neutral.

Question

Quizplus · Accepted Answer

The New Keynesian model differs from the monetary intertemporal model primarily in that it incorporates price stickiness, meaning the price level is not sufficiently flexible for the goods market to clear in the short run. This feature allows the model to better capture short-term economic fluctuations and the effects of monetary policy.

The New Keynesian Model and the Monetary Intertemporal Model Are