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Question
According to the hypothesis of New Keynesian inflation dynamics, an increase in aggregate demand brings about
A) initial sluggish adjustment of the price level followed by higher inflation later on.
B) initial rapid adjustment of the price level followed by lower inflation later on.
C) initial sluggish adjustment of real GDP followed by more rapid real GDP growth later on.
D) sluggish growth in real GDP both initially and later on.
Answer
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