According to the IS-MP-PC model, a 1% increase in the policy interest rate leads to
A)an upward shifts of the AD curve.
B)no change in the AD curve.
C)a downward shift in the AD curve.
D)a downward shift in the AS curve.

Question

Quizplus · Accepted Answer

An increase in the policy interest rate leads to a decrease in investment and consumption spending, which in turn leads to a decrease in aggregate demand. This causes the AD curve to shift downward.

According to the IS-MP-PC Model, a 1% Increase in the Policy