Jack and Kiana
Congress passes an infrastructure bill that increases government spending (G) by $500 billion.
LM curve would shift to the right if government spending would go up. This increases output and interest rate.
Companies cut back on investment, what happens to interest rates and income?
R and Y down
IS curve goes left
LM doesn’t change
Less investment = less spending. Y goes down
After a major political change, investor confidence decreases due to policy uncertainty, reducing planned investment spending.
Answer: r and y ↓
A fall in investment would lead to a leftward shift of the IS curve
IS shifting left = lower y
Leads to lower demand, causing r to fall
LM does not change
The Federal Reserve lowers interest rates to help the economy grow. What happens to interest rates and income?
R goes down
Y goes up
LM goes right
IS doesn't change
A sudden surge in the demand for money occurs after an economics influencer convinces citizens to hold wealth in cash. The central bank does nothing.
Answer: r ↑ and y ↓
Money demand increases, shifts LM curve left
Higher demand = higher r
Higher r = higher spending = lower y?