The slope of the monetary policy reaction curve is determined by:
A) how strongly the economy reacts to changes in the nominal interest rate.
B) how strongly the inflation rate impacts peoples' decisions.
C) how aggressively policymakers change interest rates in response to deviations between current and target inflation rates.
D) people's expectations for inflation.

Question

Quizplus · Accepted Answer

The slope of the monetary policy reaction curve is determined by how aggressively policymakers change interest rates in response to deviations between current and target inflation rates. This means that the steeper the slope, the more aggressively policymakers adjust interest rates to achieve their inflation target. This is important because it can impact how quickly inflation expectations become anchored and how much volatility there is in the economy.

The Slope of the Monetary Policy Reaction Curve Is Determined