If the Federal Reserve raises interest rates in an autonomous tightening ________.
A)the MP curve shifts up,there is an upward movement along the IS curve,and the AD curve shifts to the left to a lower level of equilibrium output
B)the MP curve shifts down,there is a downward movement along the IS curve and the AD curve shifts to the right to a higher level of equilibrium output
C)the MP curve shifts up,there is a downward movement along the IS curve and the AD curve shifts to the right to a lower level of equilibrium output
D)the MP curve shifts down,there is an upward movement along the IS curve and the AD curve shifts to the left to a higher level of equilibrium output
E)none of the above

Question

Quizplus · Accepted Answer

An autonomous tightening of monetary policy by raising interest rates would lead to a shift upward of the MP curve, as the cost of borrowing and lending increases. This would lead to a downward movement along the IS curve as investment and consumption decrease due to the higher cost of borrowing. The AD curve would also shift to the left as the level of output decreases due to the lower investment and consumption.

If the Federal Reserve Raises Interest Rates in an Autonomous