How should the central bank design its monetary policy during a recession if the nominal interest rate has already hit the zero lower bound?
What will be an ideal response?
The central bank usually lowers the real interest rate to stimulate economic growth when the economy is in recession or growing only slowly. However, if the nominal interest rate is already at the zero lower bound, it cannot be lowered further. In this case, the central bank tries to influence expectations of future nominal interest rates and future inflation.
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A firm will maximize profit at the level of output where:
A) its marginal revenue equals total cost. B) its marginal revenue equals marginal cost. C) its total cost equals total revenue. D) its average revenue equals average cost.
In the above figure, the shift from AD1 to AD2 might have been the result of
A) an increase in government expenditure. B) a decrease in taxes. C) an increase in the quantity of money. D) All of the above answers are correct.