Effect on IS and LM curve due to decrease in the expected future real interest rate.

Question

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Answer 1

Question

Chapter 16, Problem 3QAP

a

To determine

To show:Effect on IS and LM curve due to decrease in the expected future real interest rate.

a

Expert Solution

Explanation of Solution

A decrease in expected future interest rates will cause the IS curve to shift to the right. It will also cause the LM curve to shift downwards. Since expectations of future interest rates will affect current variables, the LM curve would shift downwards in much the same way as it would under monetary expansion. The IS curve will shift to the right, causing output to increase and the current interest rate to decrease.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

b)

To determine

To show:Effect on IS and LM curve due to an increase in the current real policy interest rate

b)

Expert Solution

Explanation of Solution

Increasing the current money supply would shift the LM curve downwards. If the expectations of financial market participants do not change, the IS curve will remain the same and output won't change by much. If people expect the future interest rates to change, the IS curve right shift to the right, increasing output by a significant amount.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

c)

To determine

To know:Effect on IS and LM curve due to an increase in expected future taxes.

c)

Expert Solution

Explanation of Solution

An increase in future taxes will shift the IS curve to the left. The current output will decrease as consumers will have less disposable income to spend on consumption. This will lead to a lower level of output.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

d)

To determine

To find:Effect on IS and LM curve due to decrease in expected future income.

d)

Expert Solution

Explanation of Solution

A decrease in expected future income will have the same effect as in part (c). The IS curve will shift to the left and lead to a decrease in consumption. Again, a decrease in future income will cause consumers to have less disposable income, leading to a lower level of output.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

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Answer 2

Question

Chapter 16, Problem 3QAP

a

To determine

To show:Effect on IS and LM curve due to decrease in the expected future real interest rate.

a

Expert Solution

Explanation of Solution

A decrease in expected future interest rates will cause the IS curve to shift to the right. It will also cause the LM curve to shift downwards. Since expectations of future interest rates will affect current variables, the LM curve would shift downwards in much the same way as it would under monetary expansion. The IS curve will shift to the right, causing output to increase and the current interest rate to decrease.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

b)

To determine

To show:Effect on IS and LM curve due to an increase in the current real policy interest rate

b)

Expert Solution

Explanation of Solution

Increasing the current money supply would shift the LM curve downwards. If the expectations of financial market participants do not change, the IS curve will remain the same and output won't change by much. If people expect the future interest rates to change, the IS curve right shift to the right, increasing output by a significant amount.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

c)

To determine

To know:Effect on IS and LM curve due to an increase in expected future taxes.

c)

Expert Solution

Explanation of Solution

An increase in future taxes will shift the IS curve to the left. The current output will decrease as consumers will have less disposable income to spend on consumption. This will lead to a lower level of output.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

d)

To determine

To find:Effect on IS and LM curve due to decrease in expected future income.

d)

Expert Solution

Explanation of Solution

A decrease in expected future income will have the same effect as in part (c). The IS curve will shift to the left and lead to a decrease in consumption. Again, a decrease in future income will cause consumers to have less disposable income, leading to a lower level of output.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 16, Problem 3QAP

a

To determine

To show:Effect on IS and LM curve due to decrease in the expected future real interest rate.

a

Expert Solution

Explanation of Solution

A decrease in expected future interest rates will cause the IS curve to shift to the right. It will also cause the LM curve to shift downwards. Since expectations of future interest rates will affect current variables, the LM curve would shift downwards in much the same way as it would under monetary expansion. The IS curve will shift to the right, causing output to increase and the current interest rate to decrease.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

b)

To determine

To show:Effect on IS and LM curve due to an increase in the current real policy interest rate

b)

Expert Solution

Explanation of Solution

Increasing the current money supply would shift the LM curve downwards. If the expectations of financial market participants do not change, the IS curve will remain the same and output won't change by much. If people expect the future interest rates to change, the IS curve right shift to the right, increasing output by a significant amount.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

c)

To determine

To know:Effect on IS and LM curve due to an increase in expected future taxes.

c)

Expert Solution

Explanation of Solution

An increase in future taxes will shift the IS curve to the left. The current output will decrease as consumers will have less disposable income to spend on consumption. This will lead to a lower level of output.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

d)

To determine

To find:Effect on IS and LM curve due to decrease in expected future income.

d)

Expert Solution

Explanation of Solution

A decrease in expected future income will have the same effect as in part (c). The IS curve will shift to the left and lead to a decrease in consumption. Again, a decrease in future income will cause consumers to have less disposable income, leading to a lower level of output.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 16, Problem 3QAP

a

To determine

To show:Effect on IS and LM curve due to decrease in the expected future real interest rate.

a

Expert Solution

Explanation of Solution

A decrease in expected future interest rates will cause the IS curve to shift to the right. It will also cause the LM curve to shift downwards. Since expectations of future interest rates will affect current variables, the LM curve would shift downwards in much the same way as it would under monetary expansion. The IS curve will shift to the right, causing output to increase and the current interest rate to decrease.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

b)

To determine

To show:Effect on IS and LM curve due to an increase in the current real policy interest rate

b)

Expert Solution

Explanation of Solution

Increasing the current money supply would shift the LM curve downwards. If the expectations of financial market participants do not change, the IS curve will remain the same and output won't change by much. If people expect the future interest rates to change, the IS curve right shift to the right, increasing output by a significant amount.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

c)

To determine

To know:Effect on IS and LM curve due to an increase in expected future taxes.

c)

Expert Solution

Explanation of Solution

An increase in future taxes will shift the IS curve to the left. The current output will decrease as consumers will have less disposable income to spend on consumption. This will lead to a lower level of output.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

d)

To determine

To find:Effect on IS and LM curve due to decrease in expected future income.

d)

Expert Solution

Explanation of Solution

A decrease in expected future income will have the same effect as in part (c). The IS curve will shift to the left and lead to a decrease in consumption. Again, a decrease in future income will cause consumers to have less disposable income, leading to a lower level of output.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 16, Problem 3QAP

a

To determine

To show:Effect on IS and LM curve due to decrease in the expected future real interest rate.

a

Expert Solution

Explanation of Solution

A decrease in expected future interest rates will cause the IS curve to shift to the right. It will also cause the LM curve to shift downwards. Since expectations of future interest rates will affect current variables, the LM curve would shift downwards in much the same way as it would under monetary expansion. The IS curve will shift to the right, causing output to increase and the current interest rate to decrease.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

b)

To determine

To show:Effect on IS and LM curve due to an increase in the current real policy interest rate

b)

Expert Solution

Explanation of Solution

Increasing the current money supply would shift the LM curve downwards. If the expectations of financial market participants do not change, the IS curve will remain the same and output won't change by much. If people expect the future interest rates to change, the IS curve right shift to the right, increasing output by a significant amount.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

c)

To determine

To know:Effect on IS and LM curve due to an increase in expected future taxes.

c)

Expert Solution

Explanation of Solution

An increase in future taxes will shift the IS curve to the left. The current output will decrease as consumers will have less disposable income to spend on consumption. This will lead to a lower level of output.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

d)

To determine

To find:Effect on IS and LM curve due to decrease in expected future income.

d)

Expert Solution

Explanation of Solution

A decrease in expected future income will have the same effect as in part (c). The IS curve will shift to the left and lead to a decrease in consumption. Again, a decrease in future income will cause consumers to have less disposable income, leading to a lower level of output.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

Answer 6

Chapter 16, Problem 3QAP

a

To determine

To show:Effect on IS and LM curve due to decrease in the expected future real interest rate.

a

Expert Solution

Explanation of Solution

A decrease in expected future interest rates will cause the IS curve to shift to the right. It will also cause the LM curve to shift downwards. Since expectations of future interest rates will affect current variables, the LM curve would shift downwards in much the same way as it would under monetary expansion. The IS curve will shift to the right, causing output to increase and the current interest rate to decrease.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

Answer 7

Chapter 16, Problem 3QAP

a

To determine

To show:Effect on IS and LM curve due to decrease in the expected future real interest rate.

Answer 8

a

Expert Solution

Explanation of Solution

A decrease in expected future interest rates will cause the IS curve to shift to the right. It will also cause the LM curve to shift downwards. Since expectations of future interest rates will affect current variables, the LM curve would shift downwards in much the same way as it would under monetary expansion. The IS curve will shift to the right, causing output to increase and the current interest rate to decrease.

Answer 9

a

Expert Solution

Answer 10

a

Expert Solution

Answer 11

Expert Solution

Answer 12

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

Answer 13

b)

To determine

To show:Effect on IS and LM curve due to an increase in the current real policy interest rate

b)

Expert Solution

Explanation of Solution

Increasing the current money supply would shift the LM curve downwards. If the expectations of financial market participants do not change, the IS curve will remain the same and output won't change by much. If people expect the future interest rates to change, the IS curve right shift to the right, increasing output by a significant amount.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

Answer 14

b)

To determine

To show:Effect on IS and LM curve due to an increase in the current real policy interest rate

Answer 15

b)

Expert Solution

Explanation of Solution

Increasing the current money supply would shift the LM curve downwards. If the expectations of financial market participants do not change, the IS curve will remain the same and output won't change by much. If people expect the future interest rates to change, the IS curve right shift to the right, increasing output by a significant amount.

Answer 16

b)

Expert Solution

Answer 17

b)

Expert Solution

Answer 18

Expert Solution

Answer 19

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

Answer 20

c)

To determine

To know:Effect on IS and LM curve due to an increase in expected future taxes.

c)

Expert Solution

Explanation of Solution

An increase in future taxes will shift the IS curve to the left. The current output will decrease as consumers will have less disposable income to spend on consumption. This will lead to a lower level of output.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

Answer 21

c)

To determine

To know:Effect on IS and LM curve due to an increase in expected future taxes.

Answer 22

c)

Expert Solution

Explanation of Solution

An increase in future taxes will shift the IS curve to the left. The current output will decrease as consumers will have less disposable income to spend on consumption. This will lead to a lower level of output.

Answer 23

c)

Expert Solution

Answer 24

c)

Expert Solution

Answer 25

Expert Solution

Answer 26

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

Answer 27

d)

To determine

To find:Effect on IS and LM curve due to decrease in expected future income.

d)

Expert Solution

Explanation of Solution

A decrease in expected future income will have the same effect as in part (c). The IS curve will shift to the left and lead to a decrease in consumption. Again, a decrease in future income will cause consumers to have less disposable income, leading to a lower level of output.

Economics Concept Introduction

Introduction:

IS curve is a graphical representation of goods market equilibrium showing combination of interest rate and output level.

LM curve is a graphical representation of money market equilibrium showing combination of interest rate and output level.

Answer 28

d)

To determine

To find:Effect on IS and LM curve due to decrease in expected future income.

Answer 29

d)

Expert Solution

Explanation of Solution

A decrease in expected future income will have the same effect as in part (c). The IS curve will shift to the left and lead to a decrease in consumption. Again, a decrease in future income will cause consumers to have less disposable income, leading to a lower level of output.