Question

1) Suppose the central bank pursues restrictive monetary policy. Then: a. The IS curve shifts right...

1) Suppose the central bank pursues restrictive monetary policy. Then:

a. The IS curve shifts right

b. The IS curve shifts left

c. The LM curve shifts right

d. The LM curve shifts left

2. Which of the following would not cause the IS curve to shift to the left?

a. a decrease in government expenditures

b. a decrease in the money supply

c. an increase in the domestic price level

d. an increase in taxes

3)Under fixed exchange rates, when a central bank increases money supply, it first shifts the LM curve to the ______ and later shifts ______.

a. left; the LM curve to the right.

b. left; the IS curve to the right.

c. right; the LM curve to the left.

d. right; the IS curve to the right.

Homework Answers

Answer #1

Ans 1: (D) because LM curve is a money market curve and a restrictive policy means decreasing the money supply into the economy, would shift the LM curve to left. The IS curve is a goods market equilibrium and shifts due to changes in government expenditure.

Ans 2: (B) because a decrease in the money supply would shift the LM curve to the left and not affect the IS curve.

Ans 3: (C) because under fixed exchange rate and perfect capital mobility, monetary policy is ineffective in raising output level. An increase in money supply shift the LM curve to the right, exchange rate starts rising, domestic currency starts depreciating, to keep the exchange rate fixed, the LM curve shift to left.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. Suppose that there is an increase in the costs of production that shifts the short-run...
1. Suppose that there is an increase in the costs of production that shifts the short-run aggregate supply curve left. If there is no policy response, then eventually a. because unemployment is high, wages will be bid up and short-run aggregate supply will shift right. b. because unemployment is low, wages will be bid up and short-run aggregate supply will shift right. c. because unemployment is high, wages will be bid down and short-run aggregate supply will shift right. d....
Suppose that the central bank can influence expectations about inflation by promising to increase the money...
Suppose that the central bank can influence expectations about inflation by promising to increase the money supply in the future. In a liquidity trap,the central bank promising to increase the money supply in the future would cause___________(increase, decrease or not change) in expected​ inflation,which in the current period ___________(would cause a shift to the left; would cause a shift to the right; would cause no change ; may cause the shift to left, the shift to right or no change)...
Suppose the Reserve Bank of Australia pursues contractionary monetary policy. This policy move will tend to...
Suppose the Reserve Bank of Australia pursues contractionary monetary policy. This policy move will tend to cause: Select one: a. a decrease in  i in the medium run and no change in  r in the medium run. b. an increase in  i in the medium run and no change in  r in the medium run. c. no change in  i in the medium run and an increase in  r in the medium run. d. a decrease in  i in the medium run and a decrease in  r in...
An increase in money supply shifts the LM curve to the right, but an increase in...
An increase in money supply shifts the LM curve to the right, but an increase in money demand shifts the LM curve to the left. Giving reasons, explain why there is a difference. (150 words maximum)
1. Aggregate demand shifts right if at a given price level a. taxes fall and shifts...
1. Aggregate demand shifts right if at a given price level a. taxes fall and shifts right if the money supply increases. b. taxes rise and shifts right if the money supply increases. c. taxes rise and shifts left if the money supply increases. d. taxes fall and shifts left if the money supply increases. 2. Which of the following can explain the economic growth and inflation over the last 20 years. a. Shift in SRAS to the right due...
1) Equilibrium output will rise and the equilibrium interest rate will fall if : A) government...
1) Equilibrium output will rise and the equilibrium interest rate will fall if : A) government spending increases B) net exports increase. C) there is an autonomous increase in money demand D) the Fed increases the money supply 2) In the IS/LM model A) the money supply is always fixed B) consumptions expenditures are fixed C) the price level is fixed D) the level of real GDP is fixed 3)Changes in monetary policy shift the LM curve, while changes in...
When the Central Bank ________, they cause the money supply to increase, which increases aggregate demand....
When the Central Bank ________, they cause the money supply to increase, which increases aggregate demand. A) follows quantitive easing policy B) follows an expansionary monetary policy C) follows a contractionary monetary policy
1.Which of the following does not affect the location of the DD curve? (a) monetary policy...
1.Which of the following does not affect the location of the DD curve? (a) monetary policy (b) government spending (c) taxes (d) export Demand (e) price levels 2.A permanent fiscal expansion under a flexible exchange rate regime (a) shifts the DD to the right and the AA schedule to the left, leaving output the same. (b) shifts the DD and the AA schedules to the right, increasing output. (c) shifts the DD and the AA schedules to the right, decreasing...
33. Which of the following is true for an expansionary fiscal policy? a. It leads to...
33. Which of the following is true for an expansionary fiscal policy? a. It leads to a fall in the interest rate. b. It has no impact on the aggregate output. c. It causes an increase in the aggregate demand. d. It increases the level of imports. 34. An increase in the domestic price level will: a. shift the IS curve to the right. b. shift the LM curve to the right. c. shift the FE curve to the left....
What shape does the LM curve take when the central bank fixes the interest rate instead...
What shape does the LM curve take when the central bank fixes the interest rate instead of money supply? How does monetary policy work in such an economy?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT