Chapter 22
The Monetary Policy and Aggregate Demand Curves
Chapter 22 develops two other building blocks of the AD/AS framework, the monetary policy
curve and the aggregate demand curve. It explains why monetary policymakers raise interest
rates when inflation rises so that there is a positive relationship between real interest rates and
inflation, which is called the monetary policy (MP) curve. It also explains that shifts in monetary
policy involve autonomous easing or tightening of monetary policy, which involve changes in
the real interest rate for a given level of inflation. Students often struggle with the difference
between movements along the MP Curve and shifts in the MP curve. Two applications help