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 monetary policymakers are more concerned about output fluctuations than inflation fluctuations, they will prioritize stabilizing output over keeping inflation low. This means that the monetary policy reaction curve would be relatively flat, as even small movements in the real interest rate can have large impacts on output. A flat curve would mean that policymakers are willing to tolerate small changes in inflation in order to achieve greater stability in output.

If Monetary Policymakers Are More Concerned About Output Fluctuations Than