Monetary policy has real effects only when
A) all prices are flexible.
B) inflation is expected.
C) some prices are sticky.
D) the economy is at full-employment output.
E) conducted by Congress.

Question

Quizplus · Accepted Answer

Monetary policy will only have real effects when some prices are sticky, meaning that they do not adjust immediately in response to changes in monetary policy. If all prices were flexible, then changes in monetary policy would have no effect on the economy as prices would quickly adjust to the new conditions. Inflation expectations, full-employment output, and Congress are not necessary conditions for monetary policy to have real effects.

Monetary Policy Has Real Effects Only When