Assume the LM curve is flat. An increase in the risk premium A. the IS-curve will...
Assume the LM curve is flat. An increase in the risk premium
A. the IS-curve will shift to the right and an increase in equilibrium output.
B. the LM-curve will shift to the up and an increase in equilibrium interest rate.
C. the LM-curve and IS-curve remain same, so no impact on equilibrium output and interest rate
D. the LM-curve will shift to the down and an increase in equilibrium output.
E. the IS-curve will shift to the left and a decrease in equilibrium output.
Homework Answers
Answer -B
Reason -
LM CURVE shifts upward /left in two situations -
- when risk premium is higher
- when speculative demand is low
and when risk premium is higher this lead to increase in equilibrium interest rates
Add Answer to:
Assume the LM curve is flat. An increase in the risk premium
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