An increase in the output gap will shift the monetary policy rule line to the right.

Question

Quizplus · Accepted Answer

An increase in the output gap indicates a stronger economy with higher inflationary pressures. To counteract this, the central bank will typically increase interest rates, which will shift the monetary policy rule line to the right. This means that a higher interest rate will be required for a given level of inflation and output gap.

An Increase in the Output Gap Will Shift the Monetary