The IS/MP Model
In the IS/LM Model, the nominal interest rate appears on the vertical axis of the IS/LM diagram and the price level appears on the vertical axis of the AS/AD diagram. This mismatch of a rate of increase with a level does not make it easy to discuss the relation between the interest rate and the rate of inflation.
The IS/MP Model features the real interest rate on the vertical axis of the IS/MP diagram and the inflation rate on the vertical axis of the AD/IA diagram. This facilitates discussion of how monetary policy, for example, might be expressed in terms of interest rates and inflation rates.
The IS/MP Diagram
The real interest rate appears on the vertical axis.
The IS Curve
Several Keynesian models incorporate an IS Curve. The expanded discussion covers all these cases.
The Monetary Policy Curve
flat vs. upward sloping. The central bank achieves this by a combination of the supply and demand for money (ref) and interest rate targeting.
The AD/IA Diagram
The inflation rate appears on the vertical axis.
flat vs. upward sloping
Relation to Phillips Curve
Replacement for Aggregate Supply
Romer (adv macro) still calls it AS.
The EconModel presentation show both the case of horizontal MP and IA curves and upward sloping versions of those curves.
The EconModel presentation explains the following curves:
The EconModel presentation analyzes the effects of changes in:
Government Spending/Taxes. The fiscal policy effects are similar to those for the IS/LM Model. ref
A shift in the Fed's real interest rate target accomplished by moving the MP curve up or down. ref
The Simple Keynesian Model
The Simple Keynesian Model can be expressed as a special case of the IS/MP Model. more.
Gregory Mankiw explains his decision to stick with the IS/LM framework in his undergraduate textbook.