According to the monetary policy rule (assuming $\theta$_$\pi$ 0) when inflation increases, the central bank increases the nominal interest rate by _____ the increase in the rate of inflation, which _____ the real interest rate. A) more than; increases B) less than; decreases C) an amount equal to; does not change D) less than; increases

Question

According to the monetary policy rule (assuming $\theta$_$\pi$ > 0) when inflation increases, the central bank increases the nominal interest rate by _____ the increase in the rate of inflation, which _____ the real interest rate. A) more than; increases B) less than; decreases C) an amount equal to; does not change D) less than; increases

Quizplus · Accepted Answer

When inflation increases, according to the monetary policy rule, the central bank increases the nominal interest rate by more than the increase in the rate of inflation. This action increases the real interest rate, as the real interest rate is the nominal interest rate minus the inflation rate.

According to the Monetary Policy Rule (Assuming θ\thetaθ π\piπ > 0) When Inflation Increases, the Central Bank

According to the Monetary Policy Rule (Assuming $\theta$ _$\pi$ > 0) When Inflation Increases, the Central Bank