The MD and MS Curves

The MD and MS Curves
Subject: Business

Step 1 Use graphs to explain changes in equilibrium interest rates.

Create two separate graphs that show current changes in equilibrium interest rates using the MD and MS curves. Describe the following:

The Fed’s actions to fight recession

The Fed’s actions to lower inflation

To solve a problem that requires a graph, do the following:

Use (free) online graphing software such as “Padowan” to create your graph. Click here to download.

You are not required to use Padowan software for the assignment graphs. You may use Excel. Here is some information to assist you in making graphs in Excel.

If you do not have Excel you can download free software that will allow you to create Excel compatible documents called open office at

Follow the instructions on the website to learn how to create and manipulate the graph(s).

Save the graph(s) to your computer as a jpeg file.

Copy and paste the jpeg into the assignment document that you deliver to your instructor.

Clearly identify your final answer.

Step 2 Trace the economy’s reactions to the Federal Reserve’s actions.

Create two new graphs, adding AD/AS curves to each of the graphs you created in Step 1.

Step 3 Answer questions about monetary policy.

Using the graphs you created in Steps 1 and 2, answer the following questions below each graph:

Describe the transmission process of monetary policy.

How do the Fed’s actions to fight recession and lower inflation differ? How are they similar?

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