Author Question: Monetary policy can have substantial effects on the economy even when nominal interest rates are ... (Read 98 times)

arivle123 · **on:** Jun 30, 2018

Monetary policy can have substantial effects on the economy even when nominal interest rates are very low

A) since real rates are what affects borrowing and spending decisions.
B) by improving borrower and bank balance sheets.
C) by reducing transactions costs.
D) only when the policy is substantial.

Question 2

Do you think that prices are more or less sticky today than 50 years ago? Why?

What will be an ideal response?

courtney_bruh · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

B

Answer to Question 2

Less sticky. Information technology and rapid introduction of competing substitutes for goods and services enables consumers to be more price sensitive and for producers to avoid/mitigate menu costs. Workers, too, are more price sensitive and accepting of labor market flexibility. The logic of staggered price setting still applies, but rapid and deep common knowledge of market conditions enables some de facto synchronization of pricing decisions.