Business

Question

Why can the fed control the real interest rate in the short run but not in the long​ run?

1 Answer

  • it adjusts for inflation, and prices are sticky in the short run.
    when a change in the fed's monetary policy causes the nominal interest rate to change, the real interest rate also changes in the same direction. in the long run, actual and expected inflation change in response to changes in monetary policy, leaving the real interest rate unaffected
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