Suppose there is a reduction in the expected future interest rate.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

Question

Quizplus · Accepted Answer

A reduction in the expected future interest rate will increase investment demand in the current period, which will shift the IS curve to the right. This is because entrepreneurs will be more willing to invest in new projects at lower interest rates, leading to an increase in aggregate demand. The LM curve will not be affected by changes in expected future interest rates, as it is only determined by the supply and demand for money in the economy. Therefore, the correct answer is (B).

Suppose There Is a Reduction in the Expected Future Interest