Throughout 2008,inflation and the real interest rate declined together.The cause is a combination of ________.
A)monetary policy easing and declining autonomous spending
B)declining autonomous spending and movement along a fixed MP curve
C)monetary policy tightening and inversion of the MP curve
D)increased government spending and movement along a fixed MP curve
E)none of the above

Question

Quizplus · Accepted Answer

Monetary policy easing refers to the central bank's decision to lower interest rates to stimulate economic activity. This would lead to a decline in the real interest rate. Declining autonomous spending refers to a decrease in spending by households and businesses due to factors outside of the interest rate. This decrease in spending would lead to a decrease in inflation. Therefore, a combination of monetary policy easing and declining autonomous spending could lead to a simultaneous decline in inflation and the real interest rate.

Throughout 2008,inflation and the Real Interest Rate Declined Together