If a point lies on the monetary policy reaction curve, and at this point the inflation rate equals the target rate of inflation, we know that:
A)The real interest rate corresponding to this point is above the long-run real interest rate
B)The real interest rate corresponding to this point is equal to the long-run real interest rate
C)The real interest rate corresponding to this point is below the long-run real interest rate
D)Current output is above potential output

Question

Quizplus · Accepted Answer

If the inflation rate at the point on the monetary policy reaction curve is equal to the target rate of inflation, it means that the monetary policy is successful in achieving its goal of controlling inflation. The real interest rate corresponding to this point is the one that balances the demand for and supply of money, which would be the long-run real interest rate. Therefore, the answer is B.

If a Point Lies on the Monetary Policy Reaction Curve