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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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