Question 2. Assume an economy in which goods and financial markets are influenced by both the current and future expectations of economic variables. Also assume that both the current and expected inflation rates are zero.

1. Using IS-LM framework, explain what happens to output (Y) and nominal interest rate (i) when central bank increases money supply and there is no future expectation? Explain if there is a shift or movement in the IS, and/or LM curves.
2. With this increase in money supply, what happens if there is future expectati