An implication of sticky inflation is that, through monetary policy changes, the Federal Reserve (the Fed):
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 means that prices do not adjust immediately to changes in monetary policy. Therefore, the Fed can influence the real interest rate in the short run by changing the nominal interest rate. However, it may take time for the inflation rate to adjust to the new policy, so the effect may be temporary. The Fed does have some impact on inflation in the long run, but it may be limited by structural factors such as productivity growth and population demographics. Monetary policy does not directly affect the unemployment rate.

An Implication of Sticky Inflation Is That, Through Monetary Policy