Assume That People Form Expectations Rationally and That the Sticky-Price

question 75

Essay

Assume that people form expectations rationally and that the sticky-price model describes the aggregate supply curve in the economy. For each of the following scenarios explain whether or not monetary policy can have real effects on the economy. a. The central bank determines monetary policy using the same informati on available to all firms and at the same time firms are setting prices, so that both firms and policymakers have all of the same information.
b. The central bank determines monetary policy after firms have set prices using information not avalable at the time prices were set.

---

Definitions:

Coffee Machines

Appliances designed to brew coffee, varying widely in terms of functionality, design, and brewing techniques.

Labor Productivity

A measure of economic performance that compares the amount of goods and services produced with the number of labor hours used to produce them.

Total Product

The total quantity of output produced by a firm over a given period as a function of input quantities while holding technology constant.

Recovery

Recovery refers to the process of improvement or healing, often used in economic contexts to denote the period following a recession during which economic activity resumes and grows.