According to the Sticky-Price Model, Output Will Be at the Natural

question 9

Multiple Choice

According to the sticky-price model, output will be at the natural level if:

• A) firms expect a high price level and the demand for goods is high.
• B) the proportion of firms with flexible prices equals the proportion of firms with sticky prices.
• C) the price level equals the expected price level.
• D) expectations are formed adaptively, but not if expectations are formed rationally.

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Definitions:

Reserve Requirements

Regulations set by central banks determining the minimum amount of reserves a bank must hold against deposits, a tool for monetary policy.

Overnight Loans

Short-term loans that banks borrow from each other to meet reserve requirements, which must be repaid within one business day.

Municipal Bonds

Tax-exempt bonds issued by state and local governments. General obligation bonds are backed by the general taxing power of the issuer. Revenue bonds are backed by the proceeds from the project or agency they are issued to finance.

Debt Obligation

A commitment to repay borrowed money, typically in the form of loans or bonds, with specific terms and interest rates.