-Consider the IS-MP model in Figure 14.2 above.Starting from the long-run equilibrium,the burst of the housing bubble and the appropriate fed response,with a risk premium,can be shown as a movement from point __________ to point __________ and the economy is in __________.
A)d;b;its long-run equilibrium
B)b;a;an expansion
C)d;f;a recession
D)d;c;its long-run equilibrium
E)e;f;a recession

Question

-Consider the IS-MP model in Figure 14.2 above.Starting from the long-run equilibrium,the burst of the housing bubble and the appropriate fed response,with a risk premium,can be shown as a movement from point __________ to point __________ and the economy is in __________.
A)d;b;its long-run equilibrium 
B)b;a;an expansion 
C)d;f;a recession 
D)d;c;its long-run equilibrium 
E)e;f;a recession

Quizplus · Accepted Answer

The burst of the housing bubble shifts the IS curve to the left, from IS to IS'. The Fed responds by increasing the money supply, which shifts the MP curve to the right, from MP to MP'. The economy moves from point d to point f, and is in a recession.

-Consider the IS-MP Model in Figure 14