An anomoumous monetary policy that reduces real interest rates will ________ the inflation rate ________.
A) raise; temporarily
B) raise; permanently
C) lower; permanently
D) lower; temporarily

Question

Quizplus · Accepted Answer

An anonymous monetary policy that reduces real interest rates will raise the inflation rate temporarily. This is because lower real interest rates encourage more borrowing and spending, increasing demand in the economy and pushing up prices. However, this effect is usually temporary because over time, higher inflation expectations will lead to an increase in nominal interest rates, which will reduce the impact of lower real interest rates on inflation.

An Anomoumous Monetary Policy That Reduces Real Interest Rates Will