If the expected rate of inflation were to increase from 2% to 3%, the LM curve 0
ID: 1166259 • Letter: I
Question
If the expected rate of inflation were to increase from 2% to 3%, the LM curve 0 A, shifts up unless the central bank acts to offset. O B. shifts down unless the central bank acts to offset. C. shifts down regardless of central bank actions. O D. will remain in its initial location regardless of central bank actions. lf the risk premium on risky bonds increases from 4% to 5%, the LM curve LM OA. shifts up if the central bank acts to offset. O B. shifts down regardless of central bank actions. C. shifts down if the central bank acts to offset. O D. will remain in its initial location regardless of central bank actions. lf the risk premium on risky bonds increases from 4% to 5%, the IS curve The fiscal policy options that can prevent an increase in the risk premium on risky bonds from decreasing the level of LM Output, Y output include (Check all that apply.) A. higher trade barriers. B. lower taxes. C. higher government expenditures. D. weaker regulations. ? E. lower interest rates. The monetary policy options that can prevent an increase in the risk premium on risky bonds from decreasing the level of output include (Check all that apply.) A. lower reserve requirements. B. open market purchases. C. reducing the national debt. D. wage and price controls.Explanation / Answer
Q.1 Option A.
When the expected inflation increases people would demand more money which causes the curve to shift to up. But this can be offset by central bank by setting a real policy rate of interest.
Q2. Option B
When the risk premium increases the supply of money decreases
Q3. Option B and C, these are adopted by the government
Q4. Option A and B, these are adopted by the Fed