Figure 12.1: MP Curve
-In Figure 12.1, if the Federal Reserve sets the real interest rate at , which line represents the MP curve?
E) Not enough information is given.

Question

Figure 12.1: MP Curve 
-In Figure 12.1, if the Federal Reserve sets the real interest rate at  , which line represents the MP curve?
E) Not enough information is given.

Quizplus · Accepted Answer

The MP curve represents the relationship between the real interest rate and the level of planned investment spending. In Figure 12.1, the MP curve is upward sloping, indicating that as the real interest rate increases, planned investment spending decreases. The real interest rate of 11eab38d_070b_687f_a5fb_77d8d513ae89_TB6622_11 is located on the vertical axis, and the corresponding point on the MP curve is where it intersects the horizontal axis. Only line B intersects the vertical axis at the given real interest rate, so it must represent the MP curve.