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Author Question: Suppose the central bank implements a monetary expansion in the current period and is expected to ... (Read 126 times)

audie

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on: Jun 30, 2018
Suppose the central bank implements a monetary expansion in the current period and is expected to continue this monetary expansion 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

Which of the followings is not a bank's assets?
 
  A) reserves
  B) loans
  C) government bonds
  D) checkable deposits


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mcni194

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

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

Answer to Question 2

D


audie

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Reply 2 on: Jun 30, 2018
Great answer, keep it coming :)

AmberC1996

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

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