If the Fed wants to raise real GDP growth by raising money supply growth,which of the following conditions will make monetary policy more effective in raising real GDP growth?
A) Uncertainty causes people to increase their demand for cash.
B) People lose confidence and reduce investment spending.
C) People believe the Fed will abandon its policy.
D) Prices continue to remain very sticky.

Question

Quizplus · Accepted Answer

When prices are sticky, changes in the money supply have a more direct effect on real variables like output because prices do not adjust immediately to reflect the increased money supply. This can lead to a more significant impact on real GDP growth, as the increased money supply can stimulate spending and investment before prices begin to rise.

If the Fed Wants to Raise Real GDP Growth by Raising