According to the general MP rule of the IS-MP-PC model, a 1% increase in the inflation target of the central bank will cause the central bank to:
A)lower the nominal interest rate.
B)raise the nominal interest rate.
C)always raise the nominal interest rate by more than 1%.
D)always reduce the nominal interest rate by more than 1%.

Question

Quizplus · Accepted Answer

According to the general MP rule, if the central bank increases its inflation target, it will lower the nominal interest rate to stimulate the economy and achieve the higher inflation target.

According to the General MP Rule of the IS-MP-PC Model