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© 2014 Pearson Canada Inc.$23.2 The Monetary Policy Curve
The monetary policy (MP) curve indicates the relationship between ____.
A) the overnight rate and the real interest rate
B) the overnight rate and the inflation rate
C) the inflation rate and the expected inflation rate
D) the real interest rate the central bank sets and the inflation rate
Answer: D
Diff: 2 Type: MC Page Ref: 559
Skill: Recall
Objective List: 23.1 Apply the IS-MP framework for the determination of aggregate output and
the interest rate
An increase in the interest rate due to Taylor principle changes result in ____.
A) a movement up the monetary policy curve
B) a movement down the monetary policy curve
C) an upward shift of the monetary policy curve
D) a downward shift of the monetary policy curve
Answer: A
Diff: 2 Type: MC Page Ref: 560
Skill: Recall
Objective List: 23.1 Apply the IS-MP framework for the determination of aggregate output and
the interest rate
If the central bank did not follow the Taylor principle ____.
A) inflation would spiral out of control
B) it could rely on autonomous monetary policy changes
C) it could rely on non-conventional monetary policy tools
D) both B and C
Answer: A
Diff: 2 Type: MC Page Ref: 560
Skill: Recall
Objective List: 23.1 Apply the IS-MP framework for the determination of aggregate output and
the interest rate
If the central bank did not follow the Taylor principle so that the real interest rate fell when
inflation rose, ____.
A) inflation would increase
B) the nominal interest rate would not change
C) expected inflation would be equal to zero
D) output would remain unchanged
Answer: A
Diff: 2 Type: MC Page Ref: 560
Skill: Recall
Objective List: 23.1 Apply the IS-MP framework for the determination of aggregate output and
the interest rate