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

When central bankers increase the real interest rate in response to higher inflation, it reduces consumption and investment, leading to a decrease in aggregate demand, which is why the dynamic aggregate demand curve slopes downward.

The Fact That Central Bankers Tend to Respond to Higher