In the ISLM model an increase in expected inflation will cau

In the IS-LM model, an increase in expected inflation will cause which of the following?

Select one:

a. An increase in output.

b. A decrease in the real interest rate.

c. An increase in the nominal interest rate.

d. All of the above.

e. None of the above.

Solution

d) All of the above.
Because an increase in expected inflation causes increase in output, nominal interest rates, and also a reduction in the real interest rates in the IS-LM model. The output here is increasing due to higher investment level in the company. There is also a decrease for the demand of money.