Macroeconomics Theories and Policies
Quiz 8 :
Keynesian System III
If expectations drive business cycles,then higher expectations will increase investment and shift the IS curve to the right.This means that interest rates and output should be positively correlated.
The IS curve will decrease by $1,000 because the government spending multiplier is greater than the tax multiplier by a factor of one.An increase in the IS curve will increase both interest rates and income.
In the classical model,an increase in government spending has no impact on output.In the Keynesian model,higher government spending increases the IS curve,which increases interest rates and increases income.