When the monetary policymakers raise the target inflation rate they:
A)Raise the current real inflation rate at every level of current inflation
B)Lower the current real interest rate at every level of current inflation
C)In effect shift the monetary policy reaction curve to the left
D)In effect move up along the current monetary policy reaction curve

Question

Quizplus · Accepted Answer

When the target inflation rate is raised, central banks typically lower the current real interest rate at every level of current inflation in order to stimulate spending and investment, and increase inflation. This is done by reducing the cost of borrowing, which in turn encourages businesses and consumers to take out more loans to invest and purchase goods and services, thereby increasing demand and inflation.

When the Monetary Policymakers Raise the Target Inflation Rate They