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?
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.
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Net profit after taxes per dollar of assets is a basic measure of bank profitability called
A) return on assets. B) return on capital. C) return on equity. D) return on investment.
When economic growth (a gradual shift of LRAS to the right) expands the production possibilities of an economy,
a. a higher rate of real output can be achieved in the short run, but it cannot be sustained in the long run. b. a larger output can be attained even if unemployment remains at its natural rate. c. the general level of prices will rise if the money supply is held constant. d. the equilibrium in the goods and services market will be disrupted.