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Author Question: Explain what effect a reduction in future expected output will have on the IS curve and LM curve in ... (Read 53 times)

joblessjake

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on: Jun 30, 2018
Explain what effect a reduction in future expected output will have on the IS curve and LM curve in the current period.
 
  What will be an ideal response?

Question 2

Channeling funds from individuals with surplus funds to those desiring funds when the saver does not purchase the borrower's security is known as
 
  A) barter.
  B) redistribution.
  C) financial intermediation.
  D) taxation.


laurnthompson

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Reply #1 on: Jun 30, 2018
Answer to Question 1

A reduction in Ye will cause human wealth to be higher. Individuals will reduce their current consumption and the IS curve will shift left. A reduction in Ye will also cause firms to decrease their expectations of future expected profits. When this occurs, the discounted present value of future profits is lower causing I to decrease. As I decreases, the IS curve shifts left. This will have no effect on the LM curve.

Answer to Question 2

C


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