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Mishkin • Instructor’s Manual for The Economics of Money, Banking, and Financial Markets, Twelfth Edition 230
Chapter 21
ANSWERS TO QUESTIONS
1. When the inflation rate increases, what happens to the federal funds rate? Operationally,
how does the Fed adjust the federal funds rate?
2. What is the key assumption underlying the Fed’s ability to control the real interest rate?
3. Why does the MP curve necessarily have an upward slope?
4. If = 0, what does this imply about the relationship between the nominal interest rate and
the inflation rate?
5. How does an autonomous tightening or easing of monetary policy by the Fed affect the MP
curve?
