Suppose there is an increase 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

Question

Quizplus · Accepted Answer

An increase in expected future output will lead to an increase in investment demand and therefore an increase in aggregate demand, shifting the IS curve to the right in the current period. This will result in higher output and a higher equilibrium interest rate in the current period. The LM curve will remain unchanged in the short run as it reflects the relationship between interest rates and money supply/ demand, which is assumed to be fixed in the short run.

Suppose There Is an Increase in Expected Future Output