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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In 2008, as the economy moved into a recession,
A) cyclical unemployment increased. B) structural unemployment decreased. C) natural unemployment decreased. D) frictional unemployment was not affected. E) the number of marginally attached workers decreased.
An inferior good is one for which
A) demand increases as income increases. B) demand decreases as income increases. C) the demand curve is vertical. D) the demand curve slopes up.
Using the above table, at a price of $5 there will be a
A) shortage of 20 units. B) shortage of 10 units. C) surplus of 20 units. D) surplus of 10 units.
An inflationary gap occurs when the ______ is greater than the ______.
a. aggregate supply; aggregate demand b. actual output; potential output c. long-run equilibrium; short-run equilibrium d. aggregate supply; aggregate demand