The effect on the monetary policy reaction curve resulting from policymakers decreasing their inflation target would be:
A) the monetary policy reaction curve shifting to the left.
B) a movement up the existing monetary policy reaction curve.
C) a movement down the existing monetary policy reaction curve.
D) the monetary policy reaction curve shifting to the right.

Question

Quizplus · Accepted Answer

When policymakers decrease their inflation target, the monetary policy reaction curve shifts to the left. This is because, to achieve a lower inflation target, policymakers would typically need to adopt a tighter monetary policy stance, which is represented by a leftward shift in the curve.

The Effect on the Monetary Policy Reaction Curve Resulting from Policymakers