Suppose that a new Fed chair is appointed, and his or her approach to monetary p

Question

Suppose that a new Fed chair is appointed, and his or her approach to monetary policy can be summarized by the following statement: "I care only about increasing employment; inflation has been at very low levels for quite some time; my priority is to ease monetary policy to promote employment."

How would you expect the monetary policy curve to be affected, if at all?

A.

The MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy.

B.

The MP curve will shift upward because decreasing unemployment results in a loosening of monetary policy.

C.

The MP curve will shift downward because decreasing unemployment results in a tightening of monetary policy.

D.

The MP curve will shift upward because decreasing unemployment results in a tightening of monetary policy.

Explanation / Answer

A

When the monetary policy is loosened up ,the interest rate will fall.Fall in interest rate will push the MP curve downward.

Now in oder to boost employment ,the money policy will be loose which will bring down interest rate thereby pushing MP curve downwards.

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