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.

Question

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.

Quizplus · Accepted Answer

The Answer of 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.

Assume That People Form Expectations Rationally and That the Sticky-Price