The negative relationship between inflation and the quantity of goods and services demanded comes about because of the:
A) Phillips curve.
B) monetary policy rule.
C) assumption of adaptive expectations.
D) Fisher effect.

Question

Quizplus · Accepted Answer

The monetary policy rule, such as the Taylor rule, suggests that higher inflation leads to higher interest rates, which reduces the quantity of goods and services demanded.

The Negative Relationship Between Inflation and the Quantity of Goods