In the sticky-price model, the interest rate is set
A) directly by businesses or indirectly by the combination of the stock of money and the liquidity preference of households and the central bank.
B) directly by the central bank or indirectly by the combination of the stock of money and the liquidity preference of households and businesses.
C) directly by households or indirectly by the combination of the stock of money and the liquidity preference of businesses and the central bank.
D) directly by Congress or indirectly by the combination of the stock of money and the liquidity preference of households and businesses.

Question

Quizplus · Accepted Answer

In the sticky-price model, the interest rate is influenced by the central bank's direct actions (e.g., setting policy rates) and indirectly through the interaction of the money supply and the liquidity preferences of households and businesses. The central bank plays a key role in determining monetary conditions, which in turn affect interest rates.

In the Sticky-Price Model, the Interest Rate Is Set