According to the hypothesis of New Keynesian inflation dynamics, an increase in aggregate demand brings about

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According to New Keynesian inflation dynamics, due to nominal price rigidity, an increase in aggregate demand initially results in sluggish adjustment of the price level, and inflation increases later on. This is because firms are reluctant to change their prices immediately, resulting in an initial period of excess demand and higher output prices. Over time, as firms adjust their prices, the excess demand disappears, and the inflation rate returns to its long-run equilibrium level.

According to the Hypothesis of New Keynesian Inflation Dynamics, an Increase