A change in fiscal policy shifts the:
A) IS curve
B) LM curve
C) BP curve
D) None of the above

Question

Quizplus · Accepted Answer

A change in fiscal policy (e.g. government spending or taxation) affects the level of national income and therefore shifts the IS (investment-saving) curve in the IS-LM model of the economy. A change in monetary policy (e.g. interest rates) affects the money supply and the interest rate, and therefore shifts the LM (liquidity preference-money supply) curve. The BP (balance of payments) curve is not directly affected by fiscal or monetary policy, but rather by the exchange rate and other external factors.

A Change in Fiscal Policy Shifts The