The derivation of the AD curve from the /S-MP model begins with the assumption that the Fed has a target for the rate of A second assumption made in the derivation of AD concerns the Fed's reaction to a rise in the inflation rate. Specifically, it is assumed that the Fed responds to a rise in inflation by increasing the economy's When the Fed responds to higher inflation as noted above, the negatively sloped IS curve means that aggregate expenditure will and, as a result, the output gap The end result is the AD curve, for which the relationship between inflation and the output gap is