An implication of sticky inflation is that, through monetary policy changes, the Federal Reserve:
A) has no impact on inflation
B) can alter the real interest rate in the long run
C) can alter the real interest rate in the short run
D) has no impact on the real interest rate
E) has no impact on the unemployment rate

Question

Quizplus · Accepted Answer

Sticky inflation implies that the inflation rate is resistant to changes in monetary policy in the short run. However, over the long run, monetary policy changes can still affect the real interest rate. Therefore, the Federal Reserve can alter the real interest rate in the short run but not in the long run. Answer A, D, and E are incorrect statements.

An Implication of Sticky Inflation Is That, Through Monetary Policy