The MP curve may be used to represent how ________.
A)movements of the inflation rate are determined by the real interest rate
B)monetary policy responds to changes in the real interest rate
C)movements of the real interest rate are related to the inflation rate
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The MP curve, or monetary policy curve, relates the nominal interest rate to the inflation rate and represents the relationship between movements in the real interest rate and changes in inflation. It does not explain how monetary policy responds to real interest rate changes, as suggested in option B, nor does it determine how inflation movements are caused by changes in the real interest rate, as suggested in option A. Therefore, option C is the correct answer.

The MP Curve May Be Used to Represent How ________