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In order to study the interactions between the goods and money markets, the monetary policy (MP) curve has been developed to represent the money market

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In order to study the interactions between the goods and money markets, the monetary policy (MP) curve has been developed to represent the money market. This curve was developed in the context of countries adopting inflation targeting as the basis of monetary policy. The MP curve is based on the assumption that the central bank will:

A. lower interest rates when inflation rises above the target

B. raise interest rates when inflation rises above the target