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 an increase in stock market and consumers feel wealthier, we would likely see:

I. An increase in consumer spending and the aggregate demand to shift out to the right.

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 II and III are correct.

Only answer I is correct.

Only answers I and II are correct.

Only answers III is correct.

Only answers II is correct.

ASAP

business economics

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Answer 1

Answer #1

Only answer 1 is correct.

An increase in consumer spending and the aggregate demand to shift out to the right.

A change in aggregate demand will not increase GDP even in the short run. It is due to the flexibility of the prices. Also there will not be any reduction in the inflation.

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Answer 2

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