Two Classes of Explanations, Imperfect Information and Sticky Prices or Nominal

question 35

Multiple Choice

Two classes of explanations, imperfect information and sticky prices or nominal wage contracts, have been advanced to explain the phenomenon we call price rigidity. Which of the following statements regarding price rigidity is not correct?

• A) Both are necessary for a complete understanding of price rigidity.
• B) Price rigidity determines, to a large extent, the efficacy of monetary policy.
• C) Microeconomic underpinnings such as these help clarify the effects of monetary policy.
• D) Macroeconomists disagree about the relevance of price rigidity to effective monetary policy.
• E) All of the above statements are correct.

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Definitions:

Interest Expense

Interest Expense is the cost incurred by an entity for borrowed funds, often reflected in the income statement as a cost of financing activities.

Gross Working Capital

The total of all current assets of a company, indicating the liquid assets available for running day-to-day operations.

Current Assets

Assets of a company that are expected to be sold, consumed, or converted into cash typically within one year or one operating cycle, whichever is longer.

Operations

The day-to-day activities involved in managing and running a business or organization efficiently.