If the monetary policy rule is given by r = 1.0 + 0.5p, then 1.0 represents ________.
A) the autonomous component of the real interest rate set by the central bank
B) the responsiveness of the real interest rate to the inflation rate
C) the nominal rate as described by the Taylor principle
D) none of the above

Question

Quizplus · Accepted Answer

In the given monetary policy rule, the term "1.0" represents the autonomous component of the real interest rate set by the central bank, which is independent of the inflation rate. It is added to the equation to ensure a positive real interest rate even when the inflation rate is zero.

If the Monetary Policy Rule Is Given by R =