When nominal interest rates are zero, the MP curve has a ________ slope because monetary authorities ________ lower the nominal interest rate and the real interest rate ________ as inflation rates decline.
A) positive; cannot; falls
B) negative; cannot; rises
C) positive; can; falls
D) negative; can; rises

Question

Quizplus · Accepted Answer

When nominal interest rates are zero, the MP curve has a negative slope because monetary authorities cannot lower the nominal interest rate further, and the real interest rate rises as inflation rates decline.

When Nominal Interest Rates Are Zero, the MP Curve Has