EPPE 2024: Permanent Income Hypothesis (PIH)
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Questions and Answers

If the interest rate in the market increases, what will happen to the value of the bond?

  • It will remain the same
  • It will increase
  • It will decrease (correct)
  • It will fluctuate

    • What happens to property ownership when the bond value increases?

  • It remains the same
  • It decreases
  • It increases (correct)
  • It fluctuates

    • What is the effect of an increase in the value of property ownership on the IS curve?

  • It becomes vertical
  • It shifts to the left
  • It remains the same
  • It shifts to the right (correct)

    • Why does the monetary authority not need to shift the LM curve to LM3 to achieve target Y* in LCH?

    <p>Because the increase in money supply is sufficient</p> Signup and view all the answers

    What is the point of intersection between the LM2 curve and the IS2 curve?

    <p>Point C</p> Signup and view all the answers

    Compared to PIH, what is the characteristic of monetary policy in LCH?

    <p>It is more effective</p> Signup and view all the answers

    What is the relationship between the interest rate and the value of the bond?

    <p>Inversely proportional</p> Signup and view all the answers

    What is the effect of an increase in the money supply on the LM curve?

    <p>It shifts to the right</p> Signup and view all the answers

    Why is the size of the monetary increase required to achieve target Y* smaller in LCH than in PIH?

    <p>Because the IS curve is flatter in LCH</p> Signup and view all the answers

    What is the target level of income in the economy?

    <p>Y*</p> Signup and view all the answers

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