Central bankers with a relatively flat monetary policy reaction curve will:
A)Move interest rates more aggressively when inflation rises, leading to more volatility in output
B)Move interest rates more aggressively when inflation rises, leading to less volatility in output
C)Move interest rates less aggressively when inflation rises, leading to more volatility in output
D)Move interest rates less aggressively when inflation rises, leading to less volatility in output

Question

Quizplus · Accepted Answer

Central bankers with a relatively flat monetary policy reaction curve are less responsive to changes in inflation and are more willing to tolerate some inflation without raising interest rates aggressively. As a result, they are likely to move interest rates less aggressively when inflation rises, leading to less volatility in output.

Central Bankers with a Relatively Flat Monetary Policy Reaction Curve