A Central Bank That Does NOT Follow the Taylor Principle

question 45

Multiple Choice

A central bank that does NOT follow the Taylor principle will fail to raise nominal interest rates by more than the increase in expected inflation. Therefore,higher inflation will lead to a ________ in real interest rates,resulting in ________-sloping monetary policy curves.

• A)decline;downward
• B)rise;downward
• C)rise;upward
• D)decline;upward

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Definitions:

Principle Of Continuity

A concept in psychology suggesting that experiences are linked over time, creating a coherent sense of self.

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Visual Cliff

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