If the axes in the model for the monetary policy reaction curve are the real interest rate (vertical axis) and the rate of inflation (horizontal axis), then the monetary policy reaction curve would:
A) have a positive slope.
B) have a negative slope.
C) have a zero slope.
D) be vertical.

Question

Quizplus · Accepted Answer

The monetary policy reaction curve typically has a positive slope because as inflation increases, central banks often respond by increasing the real interest rate to cool down the economy and combat inflation.

If the Axes in the Model for the Monetary Policy