If it is the real rate of interest that savers and borrowers respond to, how does the Fed impact a real rate by targeting a nominal rate of interest?
What will be an ideal response?
Currently the Fed controls the federal funds rate and it is a market rate because it is determined in the market for excess reserves. It is also a nominal interest rate. The Fed can have some control over the real interest rate as long as we assume that inflation does not change quickly. The Fed can alter the nominal federal funds rate faster than inflation adjusts, so in effect, the Fed controls the real rate of interest.
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In the above figure, at the best affordable point, the marginal rate of substitution is
A) 0.5 of a hamburger per magazine. B) 1 hamburger per magazine. C) 1.33 hamburgers per magazine. D) 8 hamburgers per magazine.
According to the ________ Phillips curve, the unemployment rate and the inflation rate are negatively related
A) long-run and short-run B) rational expectations C) short-run D) long-run