In the IS-LM model, starting with zero expected inflation, if expected inflation becomes negative, then the:
A)IS curve shifts leftward.
B)IS curve shifts rightward.
C)LM curve shifts leftward.
D)LM curve shifts rightward.

Question

Quizplus · Accepted Answer

When expected inflation becomes negative, the real interest rate increases, which leads to a decrease in investment and consumption. This shifts the IS curve leftward.

In the IS-LM Model, Starting with Zero Expected Inflation, If