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

question 24

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

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