According to the new Keynesian sticky-price theory, a rise in aggregate demand results in ________ price level in the near term and in ________ price level in the longer term.

Question

Quizplus · Accepted Answer

The new Keynesian sticky-price theory posits that in the short term, prices do not adjust immediately to changes in demand due to price stickiness. Therefore, a rise in aggregate demand initially leaves the price level unchanged. Over the longer term, as prices become more flexible and adjust, the price level increases in response to the higher demand.

According to the New Keynesian Sticky-Price Theory, a Rise in Aggregate