In order for the Fed to respond correctly to changes in the inflation rate, the slope of the monetary policy rule line (showing the relationship between the inflation rate and the real interest rate) must be
A)greater than 1.
B)less than 1.
C)greater than zero.
D)equal to 1.
E)negative.

Question

Quizplus · Accepted Answer

The slope of the monetary policy rule line must be greater than 1 for the Fed to respond appropriately to changes in the inflation rate. This ensures that the real interest rate increases more than one-for-one with inflation, helping to stabilize the economy by cooling down inflationary pressures.

In Order for the Fed to Respond Correctly to Changes