ECO 29 21

Why is it necessary for the MP curve to have an upward​ slope?

An​ upward-sloping MP curve keeps inflation from spinning out of control.

Suppose that taxes are decreased and the central bank conducts an autonomous easing of monetary policy. What will be the​ result?

The IS curve shifts​ right, the MP curve shifts​ down, and the AD curve shifts right.

Everything else held​ constant, an increase in government spending will cause​ ________.

aggregate demand to increase

Which of the following causes the MP curve to shift​ down?

an autonomous easing of monetary policy

The Taylor principle

holds when lambda greater than 0.

A movement to the right along a given MP curve means

inflation is increasing

The MP curve gives the relationship between the

real interest rate and the inflation rate

Any factor that shifts the​ __________ curve shifts the​ __________ curve in the​ __________ direction.

Any factor that shifts the​ __________ curve shifts the​ __________ curve in the​ __________ direction.

Which of the following represents a movement along a given AD​ curve?

Inflation​ decreases, the real interest rate​ decreases, and aggregate output increases.

How do changes in planned expenditures affect the aggregate demand​ curve?

The aggregate demand curve shifts to the right if autonomous​ consumption, autonomous​ investment, autonomous net​ exports, or government purchases​ increase, or if taxes decrease.

How does an autonomous tightening or easing of monetary policy by the Fed affect the MP​ curve?

When the Fed decides to raise the real interest rate at any given inflation​ rate, the MP curve shifts upward. Monetary policy​ easing, a decision to lower the real interest rate at any given inflation​ rate, shifts the MP curve downward

How is an autonomous tightening or easing of monetary policy different than a change in the real interest rate due to a change in the current inflation​ rate?

With a tightening or easing of monetary​ policy, some projected changes in monetary policy independent of the current inflation rate may occur.

When the financial crisis started in August​ 2007, inflation was rising and the Fed began an aggressive easing lowering of the federal funds​ rate, which indicated that

the monetary policy curve shifted downward.

The MP curve is _________ sloping due to the Taylor principle.

upward

When r decreases​, this causes a movement along​ the________ curve, and shifts the ​_________ curve.

​IS; AD

Everything else held​ constant, a decrease in autonomous consumer spending will cause the IS curve to shift to the​ ________ and aggregate demand will​ ________.

​left; decrease

Everything else held​ constant, an appreciation of the domestic currency will cause the IS curve to shift to the​ ________ and aggregate demand will​ ________.

​left; decrease