QUESTION 11 What does an in QUESTION 12 o business expectati

QUESTION 11 What does an in QUESTION 12 o business expectations QUESTION 13 o goods QUESTION 14 S curve to shift right

Solution

11) the higher the real income, higher the spending. The higher the spending, the more money is needed for the transaction. So real money demand rises as real income rises but demand increases less than proportionally. Therefore the first option is correct.

12) In the IS curve equation investment is a function of interest rate. Therefore the fourth option is correct.

13) The IS curve represents the good market. For the given interest rate IS curve shows the equilibrium is goods market. Therefore the third option is correct.

14) An increase in consumer spending due to optimism shifts the IS curve to the right. As aggregate demand increases so IS curve shifts to the right. Therefore the first option is correct.