The tools of the Federal Reserve include

What fundamental problem does the New Keynesian model have, when compared to the data?

A) Investment fluctuates more than consumption. B) The real wage moves too little. C) Aggregate output demand does not matter. D) Prices do not fluctuate in the right way.

There are only two firms in an industry with demand curves q1 = 30 - P and q2 = 30 - P. Both have no fixed costs and each has a marginal cost of 10 per unit produced. If they behave as profit-maximizing price takers, each produces 20 units and sells them at a price of 10 so that each firm makes zero economic profits. Suppose the two firms form a cartel. While firm 1 produces one-half of the

profit-maximizing cartel output, firm 2 cheats and produces 5 units more. What would happen to the two firms' economic profits? A) Firm 1's profits remain the same, but firm 2's profits increase by 10.5 B) Firm 1's profits decrease by 5.5, but firm 2's profits increase by 11. C) Firm 1's profits decrease by 25, but firm 2's profits increase by 12.5. D) Firm 1's profits decrease by 12.5, but firm 2's profits increase by 25.