The IS-LM view of the world with more complex financial markets Consider an economy described by...

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The IS-LM view of the world with more complex financial markets Consider an economy described by the figure on the right. The units on the vertical axis of the figure are If the nominal policy interest rate is 5% and the expected rate of inflation is 2%, the value for the vertical intercept of the LM curve is %. Suppose the nominal policy interest rate is 5%. If expected inflation decreases from 2% to 1%, in order to keep the LM curve from shifting, the central bank must the nominal policy rate of interest to %. If the expected rate of inflation were to decrease from 2% to 1%, the IS curve If the expected rate of inflation were to decrease from 2% to 1%, the LM curve A. shifts up regardless of central bank actions. B. shifts up unless the central bank acts to offset. C. shifts down unless the central bank acts to offset. D. will remain in its initial location regardless of central bank actions. If the risk premium on risky bonds increases from 6% to 7%, the LM curve A. shifts down if the central bank acts to offset. B. shifts down regardless of central bank actions. C. shifts up if the central bank acts to offset. D. will remain in its initial location regardless of central bank actions. If the risk premium on risky bonds increases from 6% to 7%, the IS curve Policy rate, r 0 2 | IS' IS A LM LM' A' Output, Y The IS-LM view of the world with more complex financial markets Consider an economy described by the figure on the right. The units on the vertical axis of the figure are If the nominal policy interest rate is 5% and the expected rate of inflation is 2%, the value for the vertical intercept of the LM curve is %. Suppose the nominal policy interest rate is 5%. If expected inflation decreases from 2% to 1%, in order to keep the LM curve from shifting, the central bank must the nominal policy rate of interest to %. If the expected rate of inflation were to decrease from 2% to 1%, the IS curve If the expected rate of inflation were to decrease from 2% to 1%, the LM curve A. shifts up regardless of central bank actions. B. shifts up unless the central bank acts to offset. C. shifts down unless the central bank acts to offset. D. will remain in its initial location regardless of central bank actions. If the risk premium on risky bonds increases from 6% to 7%, the LM curve A. shifts down if the central bank acts to offset. B. shifts down regardless of central bank actions. C. shifts up if the central bank acts to offset. D. will remain in its initial location regardless of central bank actions. If the risk premium on risky bonds increases from 6% to 7%, the IS curve Policy rate, r 0 2 | IS' IS A LM LM' A' Output, Y