Question

Where the IS curve and the MP curve intersect in the short run, we know with...

Where the IS curve and the MP curve intersect in the short run, we know with certainty that

Group of answer choices

no recession or boom exists

actual and expected inflation are the same

there is no output gap

None of the listed options is necessarily true.

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Answer #1

Ans: None of the listed options is necessarily true. The intersection of IS-MP curve shows the equilibrium interest rate and output level in goods and money market respectively.

Other options are wrong because:

no recession or boom exists: Wrong because the intersection of IS-MP curve does not specify that there is no existence of recession or boom. Infact boom or recession can exist even when IS-MP are intersecting each other.

actual and expected inflation are the same: It is wrong, the intersection of IS-MP curve does not gurantee it.

there is no output gap: There can exist a output gap in the short run even when IS-MP are intersecting each other. The output can be more or less than potential level in short run.

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