Suppose That the RBA Raises the Current Interest Rate by Decreasing

question 40

Multiple Choice

Suppose that the RBA raises the current interest rate by decreasing the money supply, with no other policy change implemented or anticipated. Which of the following shifts in the IS and/or LM curves will take place in the current period?

• A) no shift in IS; LM up.
• B) IS right; LM down.
• C) IS left; LM up.
• D) IS left; LM down.
• E) IS right; LM up.

---

Definitions:

Current Liabilities

Short-term financial obligations due within one year, including accounts payable, short-term loans, and accrued expenses.

Cash Coverage Ratio

A liquidity ratio that measures a company’s ability to pay off its debt obligations with its cash and cash equivalents.

Tax Rate

The percentage of income or value of a transaction that is required to be paid as tax to a governmental authority.

Interest Paid

The amount paid by a borrower to a lender in compensation for the use of borrowed money, typically expressed as an annual percentage of the principal.