Assuming short-run sticky prices, the same monetary policy result may be achieved by targeting the money supply or the nominal rate of interest whenever:
a. the demand for money is stable.
b. interest income is not taxable.
c. changes in the supply of money are small and predictable.
d. real income is constant.
Ans: a. the demand for money is stable.
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In the short run, firms expand their production when the price level rises because
A) the money wage rate remains constant so the higher prices for their products makes it profitable for firms to expand production. B) each firm must keep its production up to the level of its rivals, and some firms will expand production as the price level increases. C) the higher prices allow the firm to hire more workers by offering higher wages, thereby increasing productivity and profits. D) firms can increase their profits by increasing their maintenance.
The misperceptions theory was originally proposed by ________ and rigorously formulated by ________
A) Milton Friedman; Robert Lucas B) John Maynard Keynes; Robert Solow C) Edward Prescott; Robert King D) James Tobin; Greg Mankiw