If the monetary policy reaction curve has a relatively flat slope, the dynamic aggregate demand curve is likely to have a:
A) relatively steep slope.
B) relatively flat slope.
C) positive slope.
D) zero slope.

Question

Quizplus · Accepted Answer

A relatively flat monetary policy reaction curve implies that the central bank adjusts interest rates only slightly in response to changes in inflation. This leads to a relatively steep dynamic aggregate demand curve because small changes in the policy rate have a large impact on aggregate demand, assuming other factors remain constant.

If the Monetary Policy Reaction Curve Has a Relatively Flat