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Author Question: Suppose the central bank implements a monetary contraction in the current period and is expected to ... (Read 42 times)

elizabeth18

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on: Jun 30, 2018
Suppose the central bank implements a monetary contraction in the current period and is expected to continue this monetary contraction in the future. Use the IS-LM model to illustrate graphically and explain the effects of this policy on current output and the current interest rate.
 
  What will be an ideal response?

Question 2

Suppose bank A has assets of 100, liabilities of 80, and capital of 20. Its leverage ratio is
 
  A) 4.
  B) 5.
  C) 10.
  D) 9.


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ErinKing

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

In the current period, the LM curve will shift up causing r to rise and Y to fall. The expectation that this will continue will cause individuals to expect higher future rates and lower future output. The higher future rates will decrease current C and current I. The lower future Y will do the same. So, we will also see a leftward shift in the current IS curve. This will tend to decrease the current r and current Y as well.

Answer to Question 2

B


elizabeth18

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Reply 2 on: Jun 30, 2018
Gracias!

smrtceo

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Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

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