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.

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Definitions:

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A type of spider known for its camouflage and predation tactics, often found on goldenrod plants.

Milkweeds

A group of plants known for their milky sap, serving as the primary food source for monarch butterfly larvae.

Monarch Caterpillars

Caterpillars of the Monarch butterfly, known for their striking striped patterns and feeding on milkweed plants.

Distance Effect

A phenomenon in psychology where the distance between stimuli affects response time; in cognitive tasks, greater distances usually lead to faster responses.