Author Question: Assume that the one-year interest rate is on the vertical axis of the IS-LM model and that the yield ... (Read 45 times)

frankwu · **on:** Jun 30, 2018

Assume that the one-year interest rate is on the vertical axis of the IS-LM model and that the yield curve is initially upward sloping. Suppose that financial market participants expect that the central bank will pursue a monetary contraction in the future. Given this information, we would expect which of the following to occur?

A) The yield curve will become steeper.
B) The yield curve will become flatter.
C) The yield curve will become horizontal.
D) The yield curve will become downward sloping.

Question 2

If individuals do not hold currency, we know that

A) M = D.
B) H = R.
C) the money multiplier is 1/.
D) all of the above