IS/MP model-Monetary Policy strategy?

Question

Anyone please show me how to do this problem:

describe how, if at all, each of the following affects the slope and/or position of the IS/MP curves. For these questions, illustrate only the money market and the IS/MP diagram (horizontally)

a) the central bank responds only to inflation, not output.

b) the central bank responds only to output, not inflation.

c)the central bank decides to increase interest rates, for any given value of inflation and output.

Answer 1

It's almost the same as IS/LM concept with one of a differences what vertical axis will represent "real interest rate" for MP curve instead of "nominal interest rate" as was in LM curve case.

Actually for all 3 answers only MP (monetary policy) curve will be affected, but not IS curve, thus part of statement "...affects the slope and/or position of the IS/MP curves..." is incorrect.

a) This case will be represented by shifting horizontal (slope=0 because it is independent from output) MP curve up or down depending on target inflation rate (actually it is better to consider IA curve for this case). That is to fight against higher inflation central bank will set higher real interest rate (MP will shift up).

b) This case will be represented by fixed vertical MP curve (without shifting it) and will mean movement along vertical MP curve. For case of not absolute fixing of output by monetary policy MP, curve will be upward-sloping. More strong reaction of central bank on deviation of output will mean increase in slope of MP curve, weaker reaction of central bank on deviations of output will mean flattened MP curve.

c) Upward shift of MP curve (upward sloping because it is stated "...value of inflation and output..", thus both are considered).

Actually questions (a) and (b) partially are related to each-other because if  for instance output is above natural level then even in short-run inflation usually arises automatically (if prices are not completely sticky), thus additional information about model behavior should be provided to answer correctly (level of complexity and other required assumptions).

♦ P.S. I've seen your other question here: http://answers.yahoo.com/question/index;...

Actually some of the answers the other answerer has provided to you are wrong. You should see why it is so if you know the model.