The Theory of New Keynesian Inflation Dynamics Suggests That a Fall

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.