The fact that central bankers tend to respond to higher rates of inflation by increasing the real interest rate is:
A) one reason the dynamic aggregate demand curve shifts left.
B) one reason the dynamic aggregate demand curve slopes downward.
C) one reason the dynamic aggregate demand curve shifts right.
D) why the monetary policy reaction curve has a negative slope.

Question

Quizplus · Accepted Answer

The dynamic aggregate demand curve slopes downward because, among other reasons, central bankers typically respond to higher inflation rates by increasing the real interest rate, which in turn reduces the quantity of goods and services demanded.

The Fact That Central Bankers Tend to Respond to Higher