Question

Hi I can't explain these questions from my textbook, I appreciate any help!

1.)__________ prices in the short run allow the Federal Reserve to control the real interest rate.

a.) Constant

b.) Flexible

c.) Sticky

d.) Stable

2.) The Federal Reserve can control real​ short-term interest rates because

a.) of the Taylor principle

b.) prices are sticky

c.) nominal interest rates are fixed

d.) prices are flexible

Answer 1

1. Option c

Fed controls the real interest rate in short run by adjusting the inflation as the prices of goods does not change immediately in the market.

2. Option b.

As prices of goods does not change immediately in the market. So by using monetary policy the nominal and real interest rate change in same direction.