Decreasing financial friction
A reduction in financial friction is associated with several factors. These include; decreasing the spread of credit, increasing efficiency of financial markets, increasing planned expenditure in investment, and also reducing the real-time cost of borrowing in businesses. Due to this, the IS curve moves to right hand-side, whereas the MP does not move. This is as a result of the decrease in financial friction.
Ease of monetary policy autonomously
Financial state will move along the IS curve. For the case of the MP curve, the curve will shift downwards due to the choice of lowering the real-time rate at any point inflation rate that has been outlined.
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Increasing current rate of inflation
This increase stands for the shift along the MP curve. As a result, real-time interest is increased. On the other hand, for the IS curve, the increased real-time interest, which is caused by high inflation, will represent a movement along the IS curve in lowering output, and hence, the IS curve does not shift.
Firms becoming more optimistic on future of the economy
It will result in an Autonomous increase in investments. As a result, the IS curve moves to the right hand-side. However, for the MP curve, it does not move.
A new chairperson of the Federal Reserve starts to fight inflation
When this happens, this implies that the inflation rate will decrease. As a result, the price of goods and services will tend to rise at a relatively low rate. As a result, the MP curve will shift to the left, thus resulting in high-interest rates and hence low inflation. However, for the case of the IS curve, the high-interest rates will result in an upward movement along the IS curve, thus decreasing output.
References
Roubini, N., & Backus, D. (1998). MBA Lectures in macroeconomics. Stern School of Business .
