An increase in the baseline level of consumption spending will
A) shift the IS curve to the left.
B) shift the IS curve to the right.
C) make the IS curve more vertical.
D) make the IS curve less vertical.

Question

Quizplus · Accepted Answer

An increase in the baseline level of consumption spending increases aggregate demand, which, in the context of the IS-LM model, shifts the IS curve to the right. This is because the IS curve represents all combinations of interest rates and output where the goods market is in equilibrium, and an increase in consumption spending at any given interest rate means a higher level of output is needed to maintain that equilibrium.

An Increase in the Baseline Level of Consumption Spending Will