Suppose there is a reduction in expected future output.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

A reduction in expected future output implies a decrease in expected future income, which, in turn, reduces current consumption and investment demand. As a result, the IS curve shifts leftward, indicating a decrease in the current output level. A decrease in expected future output has no direct impact on the LM curve, which reflects the relationship between the interest rate and income for a given money supply.

Suppose There Is a Reduction in Expected Future Output