Which of the following is a general rule for how demand shocks affect the IS curve?
A) Demand shocks will always show up as changes in the expected real exchange rate.
B) Demand shocks are usually rare and have little effect.
C) When any exogenous variable works to increase demand, IS shifts to the right and, conversely, when any exogenous variable works to decrease demand, IS shifts to the left.
D) When any exogenous variable works to increase demand, IS shifts to the left and conversely, when any exogenous variable works to decrease demand, IS shifts to the right.

Question

Quizplus · Accepted Answer

This is the general rule for how demand shocks affect the IS curve. An exogenous variable that increases demand, such as a decrease in taxes or an increase in government spending, will shift the IS curve to the right. On the other hand, an exogenous variable that decreases demand, such as an increase in taxes or a decrease in government spending, will shift the IS curve to the left.

Which of the Following Is a General Rule for How