According to the monetary policy rule (assuming θ_π 0) when inflation increases, the central bank increases the nominal interest rate by _____ the increase in the rate of inflation, which _____ the real interest rate. A)more than; increases B)less than; decreases C)an amount equal to; does not change D)less than; increases

Question

According to the monetary policy rule (assuming θ_π > 0) when inflation increases, the central bank increases the nominal interest rate by _____ the increase in the rate of inflation, which _____ the real interest rate. A)more than; increases B)less than; decreases C)an amount equal to; does not change D)less than; increases

Quizplus · Accepted Answer

According to the monetary policy rule, when inflation increases, the central bank raises the nominal interest rate by more than the increase in the rate of inflation to ensure that the real interest rate increases, thereby helping to control inflation.

According to the Monetary Policy Rule (Assuming θπ > 0)

According to the Monetary Policy Rule (Assuming θ_π > 0)