The New Keynesian Sticky-Price Theory Indicates That an Increase in Aggregate

question 23

Multiple Choice

The new Keynesian sticky-price theory indicates that an increase in aggregate demand generates

• A) a speedy rise in real GDP but a sluggish increase in the price level.
• B) a speedy rise in the price level but a sluggish increase in real GDP.
• C) sluggish increases in both real GDP and the price level.
• D) rapid increases in both real GDP and the price level.

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Definitions:

Dividends

Payments made by a corporation to its shareholder members, usually out of profits or reserves.

Working Capital

Current assets minus current liabilities, representing the short-term liquidity and operational efficiency of a business.

Current Ratio

An indicator of financial health showing whether a business can cover its short-term debts with assets that can be quickly converted into cash.

Acid-Test Ratio

A stringent indicator of a company's short-term liquidity, calculated by dividing liquid assets by current liabilities.