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.

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Definitions:

Propinquity

The state of being close to someone or something; proximity; it often influences personal relationships and social interactions.

Endogamy

Marriage to someone within one’s social group.

Exogamy

Marriage to someone from a different social group.

Interracial Marriage

A marriage between partners who belong to different racial groups.