Section I: True, False or Uncertain Determine whether the following statements are True, False or Uncertain and justify your response. You can write, calculate, or draw to explain your answer. Marks are awarded for stating the correct response True/False/Uncertain (2 marks) and providing an accurate justification.

1. In the Basic New Keynesian model, a firm that cannot change its price will produce a level of output above the market clearing output level.
2. In the Lagos-Wright model, a Pareto optimal allocation has the property that the marginal utility of consumption for the buyer is one.
3. In the New Keynesian Rational Expectations Model, in the output demand relationship, the difference between current output and future output increases when the actual real interest rate increases.
4. Under fiscal stabilization policy in the New Keynesian sticky price model, after a negative shock to output, the government increases expenditures and the central bank decreases the money supply.
5. If the economy is currently at the bliss point in the Basic New Keynesian model, an optimal monetary policy response to a negative shock to output supply will result in a real interest rate below the natural rate, a negative output gap, and inflation below the target.
6. If there is destruction of some of the capital stock in the New Keynesian sticky price model, and there is no response in monetary or fiscal policy, then consumption will increase in the long run.

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