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Explain how the money multiplier works

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What does it mean to say that wages and prices are sticky? What causes this stickiness for wages, and for prices? If firms do not adjust wages and prices, what do they adjust, and why?

Explain the three functions of money defined by neoclassical economic theory. What does it mean to say that money is neutral?

Explain how the money multiplier works. That is, why does an initial net change in deposits lead to a greater change in the money supply?

Consider both the case of an initial increase, and an initial decrease in deposits.

Explain the three traditional policy tools that the Federal Reserve can use to influence the level of the money supply

Reference no: EM131061741

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