Central bankers with a relatively steep monetary policy reaction curve will:
A)Move interest rates more aggressively when inflation rises, leading to more volatility in output
B)Move interest rates more aggressively when inflation rises, leading to less volatility in output
C)Move interest rates less aggressively when inflation rises, leading to more volatility in output
D)Move interest rates less aggressively when inflation rises, leading to less volatility in output

Question

Quizplus · Accepted Answer

Central bankers with a steeper monetary policy reaction curve will respond more aggressively to changes in inflation by raising interest rates more quickly. This can cause more volatility in output as the economy adjusts to the change in borrowing costs.

Central Bankers with a Relatively Steep Monetary Policy Reaction Curve