Author Question: Explain what effect an increase in the future expected interest rate will have on the IS curve and ... (Read 80 times)

mp14 · **on:** Jun 30, 2018

Explain what effect an increase in the future expected interest rate will have on the IS curve and LM curve in the current period.

What will be an ideal response?

Question 2

Securitization is a process of asset transformation that involves a number of different financial institutions working together. These financial institutions are known collectively as the

A) transformers.
B) amalgamation.
C) movers and shakers.
D) shadow banking system.

gstein359 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

An increase in the future expected interest rate will cause a reduction in the present value of future disposable income and, therefore, human wealth. This causes current C to decrease and the IS curve to shift left. The increase in the future expected rate will also cause a reduction in the present value of future profits. This will cause a reduction in investment and another leftward shift in the IS curve. The LM curve will not be affected.

Answer to Question 2

D