When nominal interest rates are above zero, the MP curve has a ________ slope because when the inflation rate increases the monetary authorities will ________ the real interest rate.
A) negative; raise
B) negative; lower
C) positive; raise
D) positive; lower

Question

Quizplus · Accepted Answer

The MP curve has a positive slope because when the inflation rate increases, the monetary authorities typically raise the real interest rate to combat inflation, reflecting a direct relationship between inflation and the real interest rate set by the monetary authorities.

When Nominal Interest Rates Are Above Zero, the MP Curve