PROMPT
Indicate whether true or false and provide explanation.
An economy subject to large and sustained structural shocks will have a higher structural unemployment rate. It is far easier to generate higher inflation if the central bank maintains a loose monetary policy when this is the case.
Real interest rates have been lower than growth for a number of years. This implies unequivocally indicates that the economy is dynamically inefficient. Hint: think about dynamic efficiency in terms of the MPK and that this may be different from real interest rates in some cases.
The sacrifice ratio during inflation reduction programs is lower the higher inflation is.
Imperfect competition is an important part of the New Keynesian Economic construct. Under imperfect competition, firms are assumed to charge a fixed markup over marginal cost. A higher markup shifts the Aggregate Supply Curve up. This results in higher inflation and a higher loss of output.
