When the multiplier is included in the IS curve, a:
A) demand shock has a larger impact on short-run fluctuations than with the standard IS curve.
B) change in the real interest rate has a smaller impact on short-run fluctuations than with the standard IS curve.
C) demand shock has a smaller impact on short-run fluctuations than with the standard IS curve.
D) change in taxes has no impact on short-run output.
E) change in the marginal product of capital has a smaller effect on short-run fluctuations in output than with the standard IS curve.

Question

Quizplus · Accepted Answer

The multiplier effect magnifies the impact of a demand shock on short-run output, leading to a larger impact than with the standard IS curve.

When the Multiplier Is Included in the IS Curve, A