The Theory of New Keynesian Inflation Dynamics Suggests That a Fall

question 123

Multiple Choice

The theory of new Keynesian inflation dynamics suggests that a fall in aggregate demand would

• A) immediately reduce the price level, followed by a more sluggish decline in real GDP.
• B) immediately raise the price level, followed by a more sluggish decline in real GDP.
• C) immediately reduce real GDP, followed by a more sluggish decline in the price level.
• D) immediately raise real GDP, followed by a more sluggish increase in the price level.

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