In the Simple Monetary Policy Rule $R _ { t } - \bar { r } = \bar { m } \left( \pi _ { t } - \bar { \pi } \right)$

question 13

Multiple Choice

In the simple monetary policy rule $R _ { t } - \bar { r } = \bar { m } \left( \pi _ { t } - \bar { \pi } \right)$ , $\left( \pi _ { t } - \bar { \pi } \right)$
Represents:

• A) the marginal product of capital
• B) how sensitive monetary policy is to changes in inflation
• C) the deviation of the inflation rate from the target rate
• D) the target rate of inflation
• E) the risk premium

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Definitions:

Average Product

The output per unit of input, calculated by dividing total production by the total quantity of input.

Labor

The work performed by humans that is used in the production of goods and services.

Diminishing Marginal Returns

An economic principle stating that as one factor of production increases while others remain constant, the incremental gains in output will eventually decrease.

Input

Resources such as labor, materials, and capital used in the production of goods and services.