Which of the following is a general rule for how demand shocks affect the IS curve?
A) Demand shocks will always show up as changes in the expected real exchange rate.
B) Demand shocks are usually rare and have little effect.
C) When any exogenous variable works to increase demand, IS shifts to the right and, conversely, when any exogenous variable works to decrease demand, IS shifts to the left.
D) When any exogenous variable works to increase demand, IS shifts to the left and conversely, when any exogenous variable works to decrease demand, IS shifts to the right.
Answer: C) When any exogenous variable works to increase demand, IS shifts to the right and, conversely, when any exogenous variable works to decrease demand, IS shifts to the left.
You might also like to view...
Every point on an open-economy IS curve represents:
A) combinations of interest rates and the supply of money, which result in equilibrium in the money market. B) combinations of interest rates and levels of production, which result in equilibrium in the goods market. C) combinations of interest rates and levels of production, which result in equilibrium in the money market, the goods market, and the forex market. D) combinations of interest rates and levels of production, which result in equilibrium in the goods market and the forex market.
Which of the following statements is false?
A) Another term for a Treasury bill is a T-bill. B) Treasury notes mature in 2 to 10 years. C) Treasury bonds are considered very safe investments, but Treasury bills are considered to be a more risky investment. D) It is unlikely the federal government will default on its bond obligations.