The IS curve shifts to the left where there is
A)a reduction in current taxes.
B)an increase in expected future taxes.
C)an increase in expected future output.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

An increase in expected future taxes, and therefore decreased expected disposable income and consumption, will lead to a decrease in current demand and investment, shifting the IS curve to the left. A reduction in current taxes, on the other hand, would increase current demand and shift the IS curve to the right. An increase in expected future output would not directly shift the IS curve, but rather shift the LM curve (representing the equilibrium in money markets), creating a new intersection point with the IS curve.

The IS Curve Shifts to the Left Where There Is