In the Basic New Keynesian Model, When There Is a Liquidity

question 25

Multiple Choice

In the Basic New Keynesian model, when there is a liquidity trap, if the central bank promises higher inflation in the future, then

• A) output falls and inflation falls.
• B) output falls and inflation rises.
• C) output rises and inflation rises.
• D) output and inflation stay the same.
• E) output rises and inflation falls.

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