The IS-MP model differs from the IS-LM model in that it is assumed
A) central banks target inflation and set interest rates to meet such a target.
B) the money supply is endogenous.
C) price and wage stickiness do not exist.
D) governments instruct central banks on the level of the money supply and interest rates.

Question

Quizplus · Accepted Answer

The IS-MP model is based on the assumption that central banks target inflation and adjust interest rates to meet their targets. This differs from the IS-LM model, which assumes that interest rates are set by the intersection of the money demand and money supply functions.

The IS-MP Model Differs from the IS-LM Model in That