If there is an increase in government spending, then, ceteris paribus, the IS curve:
A) will shift to the left.
B) will shift to the right.
C) will not shift at all.
D) will shift to the left if there is a corresponding decrease in taxes.

Question

Quizplus · Accepted Answer

An increase in government spending will lead to an increase in aggregate demand, causing the IS curve to shift to the right as the equilibrium level of output increases. This is due to the fact that government spending is a component of aggregate demand, and an increase in government spending will increase overall demand. However, if there is no corresponding increase in taxes to finance the increase in government spending, this could lead to an increase in the budget deficit, causing concerns about long-term sustainability and potentially leading to crowding out of private investment.

If There Is an Increase in Government Spending, Then, Ceteris