Suppose there is an increase 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

An increase in the expected future interest rate will make investments less attractive for businesses and households, leading to a decrease in aggregate demand. As a result, the IS curve will shift to the left in the current period. The LM curve represents the relationship between income and the interest rate in the money market, and a change in the expected future interest rate alone would not directly affect it.

Suppose There Is an Increase in the Expected Future Interest