how can the federal reserve influence long-term interest rates and shift the mp curve without changing the current risk-free interest rate?

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22-11-2022
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how can the federal reserve influence long-term interest rates and shift the mp curve without changing the current risk-free interest rate?

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contexto1005 contexto1005 · Answer 1 · 2022-11-26T10:38:31+01:00

The IS curve can be shifted to the right and GDP increased by the government by increasing expenditure or decreasing taxation.

The MP curve can be shifted downward and GDP can rise if the Fed lowers interest rates. The policies listed in part a can be combined to shift actual output in the direction of potential output.The Investment-Savings (1S) curve displays all the output (GDP) and interest rate levels where an economy’s total desired investment () and total wanted saving () are equal (S). It is possible to reach this equilibrium at an interest rate that optimises output. Because investment is larger and there is a lower interest rate, the IS curve slopes downward and to the right, increasing GDP.The Federal Reserve can lower interest rates to boost employment and productivity. To aid in reducing the recession, the federal government can increase spending.

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