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What would the inflation rate be in period t = 1? O greater than central banks inflation target O equal to central bank's inflation target O less than central bank's inflation target O not enough information to determine
Question 37 How should the central bank respond to this shock? O lower interest rates to increase short-run output O lower interest rates to decrease short-run output raise interest rates to increase short-run output raise interest rates to decrease short-run output
Will the central bank's policy always be effective? O "Yes, lowering interest rates will always eliminate the effect of financial frictions" "Yes, raising interst rates will always eliminate the effect of financial fricitions" "No, lowering interest rates may not eliminate the effect of financial frictions" "No, raising interest rates may not always eliminate the effect of financial frictions"
Question 39 What other policies could the central bank use to address financial frictions? O buying assets in markets with financial frictions expanding its balance sheet guiding expectations about future path of interest rates All of the above