Consider an initial IS-LM equilibrium with normally-sloped curves.An increase in government spending takes us to a new equilibrium with ________ income and ________ interest rate.
A)higher,a higher
B)higher,a lower
C)an unchanged,a higher
D)an unchanged,a lower
E)lower,an unchanged

Question

Quizplus · Accepted Answer

An increase in government spending shifts the IS curve to the right, leading to a new equilibrium with higher income and a higher interest rate due to the upward pressure on interest rates from increased demand for funds.

Consider an Initial IS-LM Equilibrium with Normally-Sloped Curves