Refer to the following figure when answering the following questions.
Figure 12.2: IS-MP Curve
-Consider Figure 12.2. If the Fed lowers interest rates and there are no aggregate demand shocks, the economy moves from point ________ to ________.
A) e; b
B) d; c
C) d; a
D) e; d
E) Not enough information is given.

Question

Refer to the following figure when answering the following questions.
Figure 12.2: IS-MP Curve 
-Consider Figure 12.2. If the Fed lowers interest rates and there are no aggregate demand shocks, the economy moves from point ________ to ________.
A) e; b 
B) d; c 
C) d; a 
D) e; d 
E) Not enough information is given.

Quizplus · Accepted Answer

According to the IS-MP model, a decrease in interest rates shifts the IS curve rightward. This leads to an increase in output and a decrease in the interest rate. Since there are no aggregate demand shocks, the economy moves along the MP curve to point a where the interest rate has fallen and output has increased.

Refer to the Following Figure When Answering the Following Questions