The reason inflation ________ in the Smets-Wouters DSGE model if TFP rises is because ________.
A) falls; TFP increases potential output, which expands supply
B) rises; inflationary expectations rise
C) rises; aggregate demand rises with higher incomes
D) stays the same; of money neutrality
E) falls; real interest rates adjust to equal the marginal product of capital
Correct Answer:
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