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EPPE 2024: Permanent Income Hypothesis (PIH)

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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?

Because the increase in money supply is sufficient Signup and view all the answers

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

Point C Signup and view all the answers

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

It is more effective Signup and view all the answers

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

Inversely proportional Signup and view all the answers

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

It shifts to the right 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?

Because the IS curve is flatter in LCH Signup and view all the answers

What is the target level of income in the economy?

Y* Signup and view all the answers