Author Question: The LM curve slopes upward to the right because A) the demand for money plus the demand for ... (Read 94 times)

AEWBW · **on:** Jun 30, 2018

The LM curve slopes upward to the right because

A) the demand for money plus the demand for nonmoney assets must equal the supply of money plus the supply of nonmoney assets.
B) a higher real interest rate is associated with a higher level of the output gap in money market equilibrium.
C) a higher real interest rate is associated with a higher level of saving in goods market equilibrium.
D) in equilibrium the actual real interest rate must increase one-for-one with expected real interest rate.

Question 2

What happened to real GDP and the inflation rate during the recession of 2007-2009?

What will be an ideal response?

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

Answer to Question 1

B

Answer to Question 2

Real GDP fell from 0.2 above potential GDP during the second quarter of 2007 to 7.4 below potential GDP during the third quarter of 2009. The inflation rate rose from 1.8 during the fourth quarter of 2006 to 3.2 during the third quarter of 2008, before decreasing to 0.4 during the second quarter of 2009.