When the Policy Rate Hits Its Lower Bound and Inflation

question 43

Multiple Choice

When the policy rate hits its lower bound and inflation keeps falling,this portion of the aggregate demand curve is

• A)downward sloping.
• B)upward sloping.
• C)flat.
• D)undetermined.

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Definitions:

Price of Oranges

The cost at which oranges are sold or bought in the market.

Inelastic

Describes demand that is not very sensitive to changes in price, meaning that quantity demanded changes little when prices change.

Price Elasticity

A measure of how much the quantity demanded of a good changes in response to a change in price.

Infinitely Elastic

Describes a perfectly elastic demand or supply curve, where the quantity demanded or supplied changes by an unlimited amount in response to any change in price.