In new Keynesian theory, the pattern of inflation exhibited by an economy with growing aggregate demand known as inflation dynamics is
A) initially sluggish upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future.
B) initially sluggish downward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future.
C) initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future.
D) initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future.
Question 2
Governments sometime create an excess demand for a product by setting a maximum price that is less than the equilibrium price, resulting in a permanent excess demand for the product. This is known as a price floor.
Indicate whether the statement is true or false
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