Suppose that the goal of policy were to increase GDP without putting upward pressure on interest rates. If the IS-LM construction displayed the usual slopes, then an appropriate mix of policies would be
A) a reduction in the money supply coupled with a reduction in government spending.
B) an increase in government spending, a reduction in taxes, and an increase in the supply of money.
C) a reduction in the supply of money coupled with an increase in taxation.
D) an increase in government spending coupled with some strict price controls that would fix the price level at the original level.
E) none of the above.

Question

Quizplus · Accepted Answer

An increase in government spending and a reduction in taxes would shift the IS curve to the right, increasing GDP. An increase in the supply of money would shift the LM curve to the right, preventing interest rates from rising. This combination of fiscal and monetary policies would achieve the goal of increasing GDP without putting upward pressure on interest rates.

Suppose That the Goal of Policy Were to Increase GDP