A movement along the MP curve ________.
A)implies an automatic adjustment of the interest rate
B)implies an autonomous adjustment to the interest rate
C)implies an autonomous adjustment of aggregate demand
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

A movement along the MP curve implies an automatic adjustment of the interest rate. This is because the MP curve shows the relationship between the interest rate and the level of output in the economy, assuming that prices are constant. As output increases, the demand for loanable funds increases, leading to upward pressure on the interest rate. Conversely, as output decreases, the demand for loanable funds decreases, leading to downward pressure on the interest rate. Therefore, a movement along the MP curve reflects a change in output or income, which results in an automatic adjustment of the interest rate.

A Movement Along the MP Curve ________