When the policy rate hits its lower bound and inflation keeps falling,this portion of the Monetary Policy curve is
A)downward sloping.
B)upward sloping.
C)flat.
D)undetermined.

Question

Quizplus · Accepted Answer

When the policy rate hits its lower bound and inflation keeps falling, the Bank faces the risk that inflation expectations could become de-anchored, and inflation could fall further. To address this risk, it may choose to ease monetary policy further, pulling the policy rate down to a level that is sufficiently accommodative to meet its inflation target. This would lead to a downward-sloping portion of the monetary policy curve.

When the Policy Rate Hits Its Lower Bound and Inflation