Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

This year, country T held politically sensitive parliamentary elections and the government of the incumbent ruling party temporarily increased public expenditure to enhance its popularity.

This year, country T held politically sensitive parliamentary elections and the government of the incumbent ruling party temporarily increased public expenditure to enhance its popularity. The government financed the additional expenditure by selling more bonds. Assuming thatMs,P,P*,Y*, andTwere exogenously given, what kind of impact must this policy have had on the LM curve in country T?

The answer to this question is, The LM curve will not change.

my question is, since government is selling more bonds, doesnt this mean less money supply in the market ? if so, shouldnt the LM curve shift to the left (or upward) ?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Reporting And Analysis

Authors: Lawrence Revsine, Daniel Collins

5th Edition

0078110866, 978-0078110863

More Books

Students also viewed these Economics questions

Question

Describe the components of identity.

Answered: 1 week ago