10 Questions
If the interest rate in the market increases, what will happen to the value of the bond?
It will decrease
What happens to property ownership when the bond value increases?
It increases
What is the effect of an increase in the value of property ownership on the IS curve?
It shifts to the right
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
What is the point of intersection between the LM2 curve and the IS2 curve?
Point C
Compared to PIH, what is the characteristic of monetary policy in LCH?
It is more effective
What is the relationship between the interest rate and the value of the bond?
Inversely proportional
What is the effect of an increase in the money supply on the LM curve?
It shifts to the right
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
What is the target level of income in the economy?
Y*
Test your understanding of the Permanent Income Hypothesis (PIH) by Milton Friedman, including the concept of transitory income and its relationship with measured income. Learn how to apply the PIH in both short-run and long-run scenarios.
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