110B_blanchard_4e_Ch 17 Homework Questions

110B_blanchard_4e_Ch 17 Homework Questions - current real...

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110B Ch 17 Homework Questions 1. A permanent increase in the money supply, with no other policy change implemented or anticipated, will cause which of the following shifts in the IS and/or LM curves in the current period? A. IS right; LM down. B. IS left; LM down C. IS right; LM up. D. IS left; LM down 2. The reason for the answer to question 2 is that people expect that A. future interest will increase. B. future interest rate will decrease. C. future income will decrease. D. future interest rate will not change. 3. Modern macroeconomics is based on A. rational expectations. B. adaptive expectations. C. animal spirits. 4. A fiscal contraction in the current period will tend to cause a smaller decrease in current output when people expect A. an expansionary monetary policy in the future. B. an increase in expected future interest rates. C. a decrease in expected future output. 5. A monetary expansion in the current period will cause a rightward shift in the IS curve if
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Unformatted text preview: current real interest rate and expected future real interest rates are ____ related. A. negatively B. positively C. not 6. A reduction in expected future output will cause the ___ curve to shift ___. A. IS, leftward. B. IS, rightward. C. LM, upward. D. LM, downward. 7. Whether people believe that the government policy announcement is credible or not matters, because A. it affects expectations of future economic variables. B. people like the honest government. C. politicians never keep their promise. D. people are myopic in forming their expectations. 8. Discuss the effects of a reduction in budget deficits (by cutting government spending) on output in the short run. In discussing, use an IS-LM graph with correctly labeled curves and axes. If a curve shifts in a certain way, you must explain why the curve shifts that way....
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