Which of the following is the correct new Keynesian expression for the price level? A)P = P^e + b[(1 - c)/c]ΔY B)P^e = P + b[(1 - c)/c]ΔY C)P = P^e + b[(1 + c)/c]ΔY D)P^e = P + b[(1 + c)/c]ΔY

Question

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The correct expression typically involves a base price level adjusted for factors such as expectations, output gaps, and other economic variables. Choice A represents a plausible structure for such an expression, incorporating elements like base price level (P0), adjustments for expectations and shocks (PS1U1P1eS1S1), and a term that adjusts for changes in output (ΔY) with parameters b and c reflecting sensitivity to output changes and the marginal propensity to consume, respectively.

Which of the Following Is the Correct New Keynesian Expression