Question

How does an autonomous tightening or easing of monetary policy by the Fed affect the MP curve?

Short answer

With the choice of Fed to boost the important charge per unit at the given rate of inflation, the autonomous monetary policy tightening occurs. Thus, there'll be shifts in MP curve upward. Whereas, with the choice of Fed to lower the rate of interest at the given rate, the autonomous monetary policy easing occurs. Thus, there'll be shifts in MP curve downward.

Step-by-step solution

Concept

An increase in the general price level of the economy is referred to as inflation. It causes the loss in the purchasing power of the money held by the public.

Explanation of solution 

An autonomous contraction in the monetary policy would cause the MP curve to move upwards, as the real interest rate would increase. An autonomous easing in the monetary policy would cause the MP curve to move downwards, as the real interest rate would decline.