Before revision:  The model extends the money-in-the-utility-function model by introducing matching frictions and including real wealth into the utility function . Matching frictions allow us to represent slack and to consider a general equilibrium with constant inflation. Wealth in the utility function enriches the aggregate demand structure to be consistent with permanent liquidity traps. We use the modelto study the effects of various aggregate demand and supply shocks, and to analyze several stabilization policies---such as conventional monetary policy , helicopter drop of money, tax on wealth , and government spending .
After revision:  The model extends the money-in-the-utility-function model by introducing matching frictions and including real wealth into the utility function , so the model allows for permanent zero-lower-bound episodes. In the model, the optimal monetary policy is to set the interest rate at the level that eliminates the unemployment gap. This optimal interest rate is computed from the prevailing unemployment gap and monetary multiplier (the effect of the nominal interest rate on the unemployment rate). If the unemployment gap is exceedingly large, monetary policy cannot eliminate it before reaching the zero lower bound, but a wealth tax can .