Consider the IS/LM model where the LM is horizontal. Which of the following statements are correct?Group of answer choicesAn expansionary monetary policy involves a reduction in the cash rate, shifting down the yield curve, but without a change in the LM.A restrictive monetary policy would involve an increase in the cash rate, shifting up the LM and reducing investment expenditure.Whether expansionary or restrictive, such monetary policies change the position of the LM but not the position of the yield curve.Both the second and third alternatives above are correct statements, but the first alternative is an incorrect statement.

In the IS/LM model with a horizontal LM, an expansionary fiscal policy which does not push the economy beyond full-employmentGroup of answer choiceswould lead to a larger shift in the IS curve, the larger is the income –expenditure multiplierwould lead to some crowding-out if the central bank simultaneously undertakes a restrictive monetary policyshould have no effect on interest rates if monetary policy and the yield curve are unchangedall of the other alternatives are correct

Which of the following statements is correct?Group of answer choicesAn increase in the Reserve Bank’s target cash rate would leave all other interest rates unchanged if the slope of the yield curve is unchanged.The yield curve could change its slope without current monetary policy changing.A change in the prices of long-term bonds independently of views about future monetary policy would change the position of the yield curve, but not its slope even if current monetary policy is unchanged.A restrictive monetary policy now even if it generates expectations of a more expansionary monetary policy in the future would necessarily reduce all interest rates now.

Suppose policy makers decide to reduce the money supply. This monetary policy action will cause which of the following to occur?Select one:A.Both the IS and LM curves shift.B.Output will change causing a change in investment and a shift of the IS curve.C.The LM curve shifts and the economy moves along the IS curve.D.The IS curve shifts and the economy moves along the LM curve.E.Neither the IS nor the LM curve shifts.

Consider the IS/LM model where the LM is horizontal. Suppose that the central announces an increase in its target cash rate. Other things being constant, this would result inGroup of answer choicesa shift up in the LM curve and a reduction in investment expenditurean unchanged LM curve and lower level of outputan unchanged LM curve, since the yield curve is unchanged, and lower outputa shift up in the LM curve and a higher level of output.

Which of the following statements is correct?Group of answer choicesA steepening of the yield curve could reflect a belief that the central bank will in the future conduct a more contractionary monetary policy than previously thoughtA flattening of the yield curve could reflect long-term government bonds suddenly being seen as a less attractive investmentThe yield curve reflects the effect of arbitrage in financial markets as well as what the current interest rate is in the overnight marketThe first and third alternatives above are both correct statements while the second alternative is an incorrect statement.