Figure 7-4

-As shown in Figure 7-4,an autonomous decline in expectations of future profitability causes the
A)IS schedule to shift to the left.
B)IS schedule to shift to the right.
C)LM schedule to shift to the right.
D)LM schedule to shift to the left.

Question

Figure 7-4

-As shown in Figure 7-4,an autonomous decline in expectations of future profitability causes the
A)IS schedule to shift to the left. 
B)IS schedule to shift to the right. 
C)LM schedule to shift to the right. 
D)LM schedule to shift to the left.

Quizplus · Accepted Answer

An autonomous decline in expectations of future profitability reduces investment, leading to a decrease in aggregate demand. This is represented by a leftward shift of the IS curve, which shows the combinations of interest rates and output where the goods market is in equilibrium.

Figure 7-4 -As Shown in Figure 7-4,an Autonomous Decline in Expectations of in Expectations