Use the following to answer questions :
Exhibit: IS-LM Fiscal Policy
-(Exhibit: IS-LM Fiscal Policy) Based on the graph, starting from equilibrium at interest rate r₁ and income Y₁, an increase in government spending would generate the new equilibrium combination of interest rate and income:

Question

Use the following to answer questions :
Exhibit: IS-LM Fiscal Policy

-(Exhibit: IS-LM Fiscal Policy) Based on the graph, starting from equilibrium at interest rate r₁ and income Y₁, an increase in government spending would generate the new equilibrium combination of interest rate and income:

Quizplus · Accepted Answer

The IS curve shifts to the right due to the increase in government spending, causing an increase in income from Y₁ to Y₃. However, the increase in demand for money causes the interest rate to rise from r₁ to r₂. Therefore, the new equilibrium combination of interest rate and income is r₂, Y₃.

Use the Following to Answer Questions