The Real Interest Rate for Investments Reflects Not Only the Short-Term

question 17

Multiple Choice

The real interest rate for investments reflects not only the short-term real interest rate set by the central bank,but also the financial frictions. When the policy rate has hit the floor of zero,to stimulate the economy at given inflation rates,policymakers can

• A)lower the financial frictions.
• B)lower the short-term real interest rate.
• C)lower both the short-term real interest rate and the financial frictions.
• D)lower the policy rate.

---

Definitions:

Lotto Tickets

Paper or electronic slips purchased to participate in a lottery, offering a chance to win various prizes based on randomly drawn numbers.

Cognitive Dissonance

Cognitive dissonance refers to the mental discomfort experienced by an individual who holds contradictory beliefs, attitudes, or values, leading them to seek consistency.

Cognitions

The mental processes involved in acquiring knowledge and understanding through thought, experience, and the senses.

Accessible and Strong

Refers to memories or knowledge that are easily recalled and impactful, often influencing decision-making and perceptions significantly.