IS Curve and Aggregate Demand

According to the IS curve framework, what component of aggregate expenditure is typically MOST sensitive to changes in the interest rate?

How does an increase in the interest rate typically affect net exports, according to the IS curve model?

In the context of the IS curve, what is the primary effect of decreased consumer confidence on aggregate expenditure and the IS curve?

What does a movement along the IS curve represent?

What factor would cause the IS curve to shift to the right?

According to the content, what is the central bank able to directly influence by adjusting the money supply?

If the central bank's inflation target is 2% and current inflation is 3%, what monetary policy action is MOST likely, according to the monetary policy rule?

What does the 'risk premium' primarily compensate lenders for in bond markets?

What economic factor does the 'term spread' measure?

How would an increase in global GDP growth typically affect a country's net exports, assuming other factors remain constant?

In the IS-MP model, what is the effect of discretionary fiscal policy stimulus?

According to the IS-MP model framework, what is the MOST likely initial effect of expansionary monetary policy?

What is the MOST likely effect of a credit crunch on the liquidity premium?

What signifies a situation where the central bank decreases the interest rate below the neutral rate?

How might decreased business confidence impact the IS curve?

If investors expect interest rates to be higher in the future, how will that impact longer-term rates?

Which action would MOST directly counteract the effects of a financial shock that decreases aggregate demand?

How does an increase in government assistance typically affect the IS curve?

What effect do automatic stabilizers primarily have on the economy?

What name is used to describe the effect, where increased saving leads to a fall in aggregate demand and output?

In the IS curve framework, which component of aggregate expenditure is generally considered to have the LEAST sensitivity to changes in the interest rate?

If the central bank sets the nominal policy rate ($i^{PR}$), and expected inflation ($\pi^e$) rises, what happens to the real interest rate (r), assuming the nominal rate remains unchanged?

What is the likely impact of increased risk aversion among lenders on the risk premium?

How is the 'term spread' calculated?

What is the effect on the IS curve of changes in consumer confidence?

What does the central bank directly control when fine-tuning the money supply within overnight money markets?

According to monetary policy rules, if current inflation is below the central bank's target, what action is the central bank MOST likely to take?

What is the primary factor that the 'risk premium' compensates lenders for in bond markets?

Assuming other factors remain constant, how does increased global GDP growth typically impact a country's net exports?

What is the direct impact on aggregate expenditure from discretionary fiscal policy stimulus, based on the IS-MP model?

What is the MOST likely immediate impact of expansionary monetary policy, within the IS-MP model framework?

How would you expect a credit crunch to affect the liquidity premium?

What condition is present when a central bank decreases the interest rate below the neutral rate?

How would diminished business confidence likely influence the IS curve?

If investors anticipate higher interest rates in the future, how will this expectation affect longer-term rates currently?

Following a drop in aggregate demand caused by a financial shock, which policy response would provide the MOST direct counteraction?

What effect does increased government assistance typically have on the IS curve?

What role do automatic stabilizers primarily play within an economy?

The 'paradox of thrift' describes a situation where increased saving leads to what?

Consider the effect of very high inflation expectations ($\pi^e$) that become unanchored. Even when the central bank sets a high nominal policy rate ($i^{PR}$), the real interest rate (r) remains exceptionally low or negative. According to the IS-MP model, what is the MOST likely economic outcome?

According to the IS curve framework, which of the following is the MOST direct effect of an increase in the cost of consumption loans?

In the IS-MP model, what would be the effect of increased global demand for a country's exports?

Which of the following fiscal policies would MOST likely shift the IS curve to the right?

If the central bank aims to maintain a specific nominal policy rate ($i^{PR}$) and inflation expectations ($\pi^e$) suddenly decrease, what will happen to the real interest rate (r)?

What is the MOST direct impact of increased risk aversion among lenders on the broader economy?

What characterizes the 'term spread' in financial markets?

What is the effect on real interest rates when a central bank lowers the nominal policy rate below the neutral rate?

How would decreased business confidence MOST likely impact the IS curve?

Following a financial shock that reduces aggregate demand, which policy response would be MOST effective in directly counteracting the shock, assuming timely implementation?

What is the primary function of automatic stabilizers in an economy?

In the loanable funds market, what economic factor is MOST closely associated with the risk premium?

If the central bank decreases the money supply in the overnight money market, what is the MOST likely immediate effect?

Imagine a scenario where investors suddenly anticipate significantly higher inflation in the future. If the central bank keeps the nominal interest rate unchanged, what is the MOST likely consequence?

How does an increase in the perceived riskiness of corporate bonds, relative to government bonds, MOST directly impact the risk spread?

Consider an economy where consumer confidence plummets due to fears of a potential recession. What is the MOST likely initial impact on the IS curve, assuming no immediate policy intervention?

An economy is operating at its potential output. If a large, unexpected increase in global demand for domestically produced goods occurs, what is the MOST likely sequence of events, assuming the central bank maintains its inflation target?

Imagine an economy where the central bank is committed to a strict inflation target. A significant supply-side shock increases production costs, leading to both higher inflation and lower output. According to the IS-MP framework, what is the MOST appropriate policy response for the central bank?

Consider an economy where a sudden increase in global risk aversion leads to a 'flight to safety,' causing a large inflow of capital into government bonds. How would this MOST likely affect the 'term spread' and the 'risk spread'?

In a deep recession, even with the nominal interest rate at the zero lower bound, the real interest rate may still be too high due to deflation expectations (expected negative inflation). How does this situation affect aggregate expenditure, according to the IS-MP model?

An economy is initially in equilibrium. A new technological innovation significantly increases the expected future profitability of investment for firms. What is the MOST likely combined effect on the IS curve and the MP curve, assuming the central bank does not initially react?

According to the Phillips Curve, what is the typical effect of an output gap (where actual output exceeds potential output) on inflation?

In the Phillips Curve equation, which factor represents inflation expectations?

What is the effect of predetermined labor contracts on the price-setting behavior of firms?

Which of the following factors would NOT cause a movement along the Phillips Curve?

What is the consequence of firms setting nominal prices with a markup over marginal cost?

How does high productivity growth typically affect the Phillips Curve?

According to the IS-MP-PC model, what is the initial impact of an increase in financial frictions ($\gamma$) on the economy, assuming the central bank does not immediately adjust the policy rate?

What is the implication of Cost-Push Inflation for the central bank's policy decisions?

What is the most direct consequence of a central bank losing credibility in its inflation target?

When an economy experiences 'stagflation', what challenge does this present for policymakers?

What is the primary reason wages are assumed to increase faster when unemployment is low?

According to the IS-MP-PC model, how does monetary policy feedback influence business cycle fluctuations?

Within the Phillips Curve framework, what is the effect of a negative supply shock ($\epsilon < 0$) on the short-run trade-off between inflation and output?

What is the implication of an upward-sloping Monetary Policy Rule (MPR) curve in the AS-AD model?

In the context of the Phillips Curve, what does 'menu cost' refer to?

Which scenario BEST describes a situation where the economy would experience 'demand-pull' inflation?

What is the effect of currency depreciation on the Phillips Curve?

According to the Phillips Curve, and assuming adaptive expectations, what would one expect to happen to inflation if unemployment falls below the natural rate?

Consider an economy described by the IS-MP-PC model. A financial crisis leads to a significant increase in the risk premium. The central bank, committed to its inflation target, responds by lowering the policy rate. However, the increased risk premium severely restricts the flow of credit, muting the impact of the central bank’s policy. What is the MOST likely outcome?

There is a new technology that increases productivity in the manufacturing sector, but simultaneously requires significant worker retraining. In the short run, some workers become unemployed due to their skills not matching the new requirements, while firms that have adopted the technology experience increased profits. How would this situation likely affect the Phillips Curve?

According to the Phillips Curve, how do firms typically set nominal prices?

In the Phillips Curve equation, what does the term $\alpha$ (alpha) represent?

According to the Phillips Curve, what condition is MOST likely to lead to increasing inflation?

In the context of the Phillips Curve, what does a movement along the curve typically indicate?

Which of the following would MOST likely cause a shift in the Phillips Curve?

What is the MOST likely effect of predetermined labor contracts on firms' price-setting behavior?

How does an increase in productivity growth typically affect the Phillips Curve?

How does a currency depreciation affect the Phillips Curve?

In the Phillips Curve equation, $\pi = \pi^e + \alpha \hat{y}$, what does the parameter $\alpha$ (alpha) represent?

According to the Phillips Curve, how do firms typically determine their nominal prices?

According to the Phillips Curve, how do firms primarily determine nominal prices?

What factor is least likely to influence the position of Aggregate Supply (AS) or Phillips Curve (PC) in the short run?

What is the MOST likely consequence of increased nominal wages throughout the economy, assuming no change in productivity or firms' markups?

If an economy experiences a combination of rising inflation expectations and an adverse supply shock (e.g., rising oil prices), what is the most likely short-run outcome according to the IS-MP-PC model?

In the context of the Phillips Curve, what is the MOST likely impact of a central bank successfully anchoring inflation expectations at a low and stable level?

An economy is experiencing low inflation and high unemployment. The central bank decides to increase the money supply to stimulate demand. However, businesses and consumers believe this policy will be reversed quickly. What is the likely effect on the Phillips Curve?

Suppose an economy is in long-run equilibrium with stable inflation. A new technology significantly boosts potential output, but also leads to a temporary surge in unemployment due to the need for worker retraining. Initially, how will both the short-run and long-run Phillips Curves likely be affected?

The central bank announces a new, more flexible inflation-targeting regime that explicitly allows for some short-run deviation from its target to stabilize output. How will this change MOST likely impact the slope of the short-run Phillips Curve (SRPC) and the credibility of the central bank?

A country's central bank has been consistently missing its inflation target, leading to increased uncertainty about future price levels. How would you expect increased uncertainty regarding future inflation to directly affect the wage-setting behavior of firms and workers?

In a country heavily reliant on imported intermediate goods priced in a foreign currency, a sharp and unexpected depreciation of the domestic currency occurs. The central bank is committed to maintaining its existing inflation target. What would the IS-MP-PC model predict as the MOST immediate challenge for monetary policy?

Consider an economy where a sustained period of low interest rates has led to excessive risk-taking in financial markets and a buildup of asset bubbles. If the Central Bank decides to ‘lean against the wind’ and raise interest rates to curb speculative activity, how is the Phillips Curve likely to be impacted in the short-run and medium-run?