The slope of the monetary policy rule line shows that the Fed will seek to change the nominal rate of interest
A)by less than the change in the rate of inflation.
B)only when there is an increase in the rate of inflation.
C)by more than the change in the rate of inflation.
D)by an amount equal to the change in the rate of inflation.
E)only when there is a decrease in the rate of inflation.

Question

Quizplus · Accepted Answer

The slope of the monetary policy rule line indicates the degree to which the Fed will adjust the nominal interest rate in response to changes in the rate of inflation. A steeper slope (i.e. larger coefficient on inflation) reflects a more aggressive response by the Fed to changes in inflation, while a flatter slope (i.e. smaller coefficient on inflation) reflects a more gradual response. Therefore, a slope greater than 1 (i.e. the Fed adjusts the nominal interest rate by more than the change in inflation) indicates that the Fed is seeking to actively combat changes in inflation through its monetary policy.

The Slope of the Monetary Policy Rule Line Shows That