At a given output level,a temporary reduction in government purchases will
A)increase desired saving, causing the IS curve to shift down and to the left.
B)increase desired saving, causing the IS curve to shift up and to the right.
C)decrease desired saving, causing the IS curve to shift down and to the left.
D)decrease desired saving, causing the IS curve to shift up and to the right.

Question

Quizplus · Accepted Answer

A temporary reduction in government purchases decreases aggregate demand, leading to an increase in desired saving as individuals and firms anticipate lower income or sales. This causes the IS curve, which represents equilibrium in the goods market, to shift down and to the left, indicating a lower level of output at any given interest rate.

At a Given Output Level,a Temporary Reduction in Government Purchases