Answer to Question #229272 in Economics for Jennifer Masanabo

Question

Which one of the following statements is INCORRECT?

1. The movement along IS1 from point a1 to a2 indicates the short-run to the medium-run 

adjustment process. 

2. In the medium-run, the central bank will react by decreasing the policy rate.

3. In the medium-run, the LM curve will shift downwards.

4. Point a1 is the medium-run equilibrium position.

5. When comparing point a2 with point a the demand for goods is the same since an 

increase in investment offsets the decrease in consumption

Answer 1

3. In the medium-run, the LM curve will shift downwards.