1. Describe, in your own words, the MP curve. What does the
slope of the MP curve tell you?
2. At equilibrium (i.e., no aggregate demand shocks, and
short-run output Y˜ = 0), what level does the MP curve stay at?
Why?
3. Assume that the Central Bank decides to raise interest
rates.
(a) Which rate does the Central Bank actually raise - the
nominal or the real?
(b) Explain why the MP curve shifts. Why is the assumption of...