Consider the short-run model (IS-MP-PC). Suppose now that new accounting software makes the balance sheets of banks
Question:
Consider the short-run model (IS-MP-PC). Suppose now that new accounting software makes the balance sheets of banks more transparent. As a result, banks and investors have better information regarding the composition of banks' balance sheets and this leads to a reduction in the risk premium associated with borrowing and lending among banks. In the short-run model, which curve would shift and how?
a-A reduction in the risk premium associated to borrowing and lending would shift the PC curve up.
b-A reduction in the risk premium associated to borrowing and lending would shift the PC curve down.
c-A reduction in the risk premium associated to borrowing and lending would shift the IS curve to the right.
d-A reduction in the risk premium associated to borrowing and lending would shift the MP curve down.