Changes in fiscal policy shift the:
A) LM curve.
B) money demand curve.
C) money supply curve.
D) IS curve.

Question

Quizplus · Accepted Answer

Changes in fiscal policy affect government spending, taxation, and borrowing, which in turn affects the level of economic activity and output. Specifically, an increase in government spending or a decrease in taxes shifts the IS curve to the right, indicating a higher level of output is produced at each interest rate. Conversely, a reduction in government spending or an increase in taxes shifts the IS curve to the left, indicating a lower level of output is produced at each interest rate. Thus, fiscal policy changes affect the IS curve, not the LM curve, money demand curve, or money supply curve.

Changes in Fiscal Policy Shift The