Question

Why does the MP curve necessarily have an upward slope?

Short answer

The MP curve slopes upward thanks to positive relationship of rate and real rate of interest. Positive relationship means increase in rate ends up in increase in real rate or contrariwise.

Step-by-step solution

Concept introduction 

MP curve shows the connection between the rate and real rate of interest. the 000 rate of interest takes rate into consideration and increase with increase in rate or contrariwise.

Explanation of solution 

MP curve equation is :

$\mathrm{r}=\overline{\mathrm{r}}+\lambda \pi$

Where,

$\text{-}r\text{is Real interest rate.}$

$\text{-}\overrightarrow{r}\text{isAutonomous component.}$

$\text{-}\lambda \text{is Responsiveness of the real interest rate to the inflation rate.}$

$\text{-}\pi \text{is Inflation rate.}$

Inflation is that the overall increase generally indicator of an economy. Inflation causes increase within the price of products and services which decreases the purchasing power of an economics agent.

This relationship must be positive because otherwise an increase in inflation would result into a fall in real interest rates, which might result into a rise in output, an extra increase in inflation, and an extra fall in real interest rates which might cause even higher inflation.