In the IS-MP analysis in the Fed model, a rise in the interest rate causes a:
A)movement to the left along the IS curve.
B)right shift of the IS curve.
C)left shift of the IS curve.
D)movement to the right along the IS curve.

Question

Quizplus · Accepted Answer

A rise in the interest rate leads to a decrease in investment and consumption, which in turn reduces aggregate demand. This is represented by a movement to the left along the IS curve, which shows the relationship between interest rates and the level of income that brings the goods market into equilibrium.

In the IS-MP Analysis in the Fed Model, a Rise