Using the IS-MP diagram, explain what happens to the economy if there is a temporary consumption boom
Question:
(a) Initially, suppose the central bank keeps the nominal interest rate unchanged.
(b) Suppose you are appointed to chair the Federal Reserve. What monetary policy action would you take in this case and why? Refer to the IS-MP diagram.
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a This boom means that the IS curve shifts to the right At the same old no...View the full answer
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