The document describes the IS-MP model, which shows equilibrium in the goods and services market using the IS curve and Federal Reserve monetary policy using the MP curve. A decrease in financial frictions would shift the IS curve to the right, an autonomous easing of monetary policy would shift the MP curve to the right, an increase in inflation would shift the IS curve to the left, and increased optimism about the economy would shift the IS curve to the right.

1. The IS-MP Model
The IS curve shows the combinations of the real interest rate and the aggregate output that
represent equilibrium in the market for goods and services. The MP curve represents
Federal Reserve monetary policy. For each of the following, evaluate how the IS curve and
MP curve might be affected (if at all): A decrease in financial frictions. An autonomous
easing of monetary policy. An increase in the current inflation rate. Firms become more
optimistic about the future of the economy. The new Federal Reserve chair begins to care
more about fighting inflation#ISMP #Model