I'm staying out of this argument. But I can't resist a challenge to show the New Keynesian model in pictures, with indifference curves, production functions, and budget lines.
I can't do it in one picture. I need two.
Here's the first picture:
There is no investment, government, or foreigners. Consumption and output are the same thing. The first picture is just like Steve's picture of the RBC model, except there's a wedge jammed in between the indifference curve and the production function. The thickness of that wedge represents the degree of firms' monopoly power, which causes the real wage to be below the marginal product of labour, so that at point A the indifference curve is flatter than the production function.
We only need the first picture to figure out where long run equilibrium Y* is, so we know where to draw the green lines in the second picture:
If the central bank sets the real interest rate exactly right, at r*, so the intertemporal budget line is tangent to the intertemporal indifference curve at Y* for both present and future, the equilibrium is at point A, and all is well with the world. (Or, as well as can be expected, given that firms are monopolistically competitive, so we get the blue wedge in the first diagram.)
Now suppose the central bank sets the real interest rate too high for one period, at r'. (But everyone expects the central bank will get it right next period, and so future consumption will return to Y*). That makes the budget line steeper than it should be. The equilibrium is at point B, where the brown budget line is tangent to the "worse indifference curve".
I have also drawn point B in the first diagram, just for completeness. But it doesn't really matter what happens to the real wage at point B in the first diagram. The same blue wedge would be a sloppy fit at point B, which tells us that firms will want to cut prices at point B, when the Calvo fairy gives them permission to do so.
If the central bank had made the opposite mistake, and had set the real interest rate too low, the economy would move horizontally right along the green line to the right of point A (not shown).
That's all folks.