Consider a New Keynesian model where some prices are slow to adjust in the short-run: If...

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Consider a New Keynesian model where some prices are slow to adjust in the short-run: If...

Consider a New Keynesian model where some prices are slow to adjust in the short-run: If there is a temporary increase in consumer pessimism, we would likely see:

I. A decrease in consumer spending and the aggregate demand to shift out to the left.

II. An increase in the growth rate of real GDP in the short run.

III. A reduction in inflation in the short run

Group of answer choices

Only answers I and III are correct.

Only answer I is correct.

Only answers I and II are correct.

Only answers II is correct.

Only answers III is correct.

business economics

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Answer 1

Answer #1

Option (A).

In short run, an increase in consumer pessimism will lower consumer confidence. This will decrease consumption and reduce aggregate demand. AD curve shifts left, decreasing price level and decreasing real GDP.

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Answer 2

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