During the financial crisis of 2008-2009, many financial institutions in Canada reduced the amount of loans, even to creditworthy customers, which could be represented in the IS-LM model as a(n):
A)expansionary shift in the IS curve.
B)contractionary shift in the IS curve.
C)expansionary shift in the LM curve.
D)contractionary shift in the LM curve.

Question

Quizplus · Accepted Answer

A reduction in loans, even to creditworthy customers, indicates a decrease in investment and spending, leading to a contractionary shift in the IS curve.

During the Financial Crisis of 2008-2009, Many Financial Institutions in Canada