Suppose there is a decrease in expected future output. This will cause which of the following to occur?
A) The IS curve to shift left in the current period.
B) The IS curve to shift right in the current period.
C) The LM curve to shift up in the current period.
D) The LM curve to shift down in the current period.
E) Both the IS and LM curves to shift left in the current period.

Question

Quizplus · Accepted Answer

A decrease in expected future output will lead to a decrease in investment, which will cause a leftward shift of the IS curve in the current period. This shift reflects the lower level of output that will result from the reduced investment. The LM curve is not directly affected by changes in expected future output, so choices C, D, and E can be eliminated. While a change in expected future output can impact other factors that influence the LM curve, such as expected future inflation, this is not explicitly stated in the question. Therefore, the correct answer is A.

Suppose There Is a Decrease in Expected Future Output