If the slope of the monetary policy rule line is 2, then when inflation rises by 1 percent, the
A)nominal interest rate rises by 2 percent.
B)nominal interest rate rises by 1 percent.
C)nominal interest rate rises by 3 percent.
D)real interest rate rises by 2 percent.
E)real interest rate rises by 3 percent.

Question

Quizplus · Accepted Answer

The slope of the monetary policy rule line represents how much the nominal interest rate changes in response to a change in inflation. If the slope is 2, then a 1 percent increase in inflation leads to a 2 percent increase in the nominal interest rate.

If the Slope of the Monetary Policy Rule Line Is