Why does the monetary policy curve slope upward? (check all that apply.)
a. Monetary policymakers will follow the Taylor principle and respond aggressively to a decrease in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.
b. When inflation increases, the supply of real money balances increases. This increases the equilibrium nominal interest rate in the money market, which also increases the real interest rate in the short run.
c. Monetary policymakers will follow the Taylor principle and respond aggressively to an increase in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.
d. When inflation increases, the supply of real money balances declines. This increases the equilibrium nominal interest rate in the money market, which also increases the real interest rate in the short run.
Why does the monetary policy curve slope upward? (check all that apply.)
a. Monetary policymakers will follow the Taylor principle and respond aggressively to a decrease in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.
b. When inflation increases, the supply of real money balances increases. This increases the equilibrium nominal interest rate in the money market, which also increases the real interest rate in the short run.
c. Monetary policymakers will follow the Taylor principle and respond aggressively to an increase in the inflation rate by raising nominal interest rates by an even greater amount so that the real interest rate also rises.
d. When inflation increases, the supply of real money balances declines. This increases the equilibrium nominal interest rate in the money market, which also increases the real interest rate in the short run.
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