Assume that the current demand for goods depends on expectations in the IS- LM model. A monetary expansion in the current period will cause a rightward shift in the IS curve if:
A) current and expected future real interest rates are negatively related.
B) current and expected future real interest rates are positively related.
C) current and expected future real interest rates are unrelated.
D) monetary policy cannot affect, directly or indirectly, the position of the IS curve in the current period.
E) the central bank is expected to reverse any current movements in monetary policy in the future.

Question

Quizplus · Accepted Answer

A monetary expansion lowers current interest rates, and if expected future rates are positively related, it can increase expected future demand, shifting the IS curve right.

Assume That the Current Demand for Goods Depends on Expectations