In the IS-MP analysis in the Fed model, a fall in investment will shift the:
A)IS curve to the left.
B)IS curve to the right.
C)MP curve up.
D)MP curve down.

Question

Quizplus · Accepted Answer

A fall in investment will decrease aggregate demand, which will shift the IS curve to the left. This is because investment is a component of aggregate demand, and a decrease in investment will result in a lower level of output at any given interest rate, shifting the IS curve to the left. The MP curve is not affected by a change in investment.

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