Refer to the following figure when answering the following questions.
Figure 12.2: IS-MP Curve
-Consider Figure 12.2. If the Fed lowers interest rates and there are no aggregate demand shocks, the economy moves from point ________ to ________.
A) d; a
B) c; a
C) a; b
D) d; c
E) None of these answers is correct.

Question

Refer to the following figure when answering the following questions.
Figure 12.2: IS-MP Curve 
-Consider Figure 12.2. If the Fed lowers interest rates and there are no aggregate demand shocks, the economy moves from point ________ to ________.
A) d; a 
B) c; a 
C) a; b 
D) d; c 
E) None of these answers is correct.

Quizplus · Accepted Answer

The correct answer is A because when the Fed lowers interest rates, it makes borrowing more attractive, which leads to increased investment and consumption. This shifts the aggregate demand curve to the right, moving the economy from point d to point a.

Refer to the Following Figure When Answering the Following Questions