If monetary policymakers are more concerned about output fluctuations than inflation fluctuations:
A) they will choose a relatively steep monetary policy reaction curve in which movements in the real interest rates are small.
B) they will choose a relatively flat monetary policy reaction curve in which movements in the real interest rates are small.
C) they will choose a relatively steep monetary policy reaction curve in which movements in the real interest rates are large.
D) they will choose a relatively flat monetary policy reaction curve in which movements in the real interest rates are large.

Question

Quizplus · Accepted Answer

If policymakers are more concerned about output fluctuations than inflation fluctuations, they will choose a relatively flat monetary policy reaction curve in which movements in the real interest rates are small. This decision is made to stabilize output fluctuations by avoiding large movements in interest rates that can have a negative impact on business investments and consumer spending. A flat reaction curve allows the central bank to avoid large interest rate fluctuations and maintain a stable environment for output growth.

If Monetary Policymakers Are More Concerned About Output Fluctuations Than