Question 1:

An increase in the real interest rate

1. leads to a movement upward and to the right along the LM curve and upward to the left along the IS curve.

2. will cause the LM curve to shift to the right and the IS curve to shift to the left.

3. will lead to a movement upward and either to the left or the right along the IS and LM curves depending on where they cross.

4. will do none of the above.

Choose the option above that is correct.