1. If the nominal policy interest rate is 5% and the expected rate of inflation is 3%, what is the value for the vertical intercept of the LM curve?

2. If the expected rate of inflation were to decrease from 3% to 2%, with the nominal policy rate unchanged, does the IS curve shift?

3. If the expected rate of inflation were to decrease from 3% to 2%, does the LM curve shift?

4. What are the monetary policy options that prevent an increase in the risk premium on risky bonds from decreasing the level of output?

Answer rating: 100% (QA)

1 Vertical Intercept of the LM Curve The vertical intercept of the LM curve represents the equilibrium level of the real money supply MP when the nomi... View the full answer