A decline in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________,everything else held constant.
A)rise;LM;right
B)rise;IS;right
C)fall;IS;left
D)fall;LM;left

Question

Quizplus · Accepted Answer

A decline in autonomous planned investment spending would shift the aggregate expenditure (AE) curve downwards, as AE = C + I + G + NX. This leads to a lower equilibrium level of output, which is the intersection of the AE curve and the 45-degree line. The IS curve shows the combinations of interest rates and output levels that equate investment with saving, but investment decreases due to the decline in autonomous planned investment spending, which shifts the IS curve to the left. The LM curve shows the combinations of interest rates and output levels that equilibrate the money market, but the decrease in investment spending has no direct effect on it. Therefore, the correct answer is C) fall; IS; left.

A Decline in Autonomous Planned Investment Spending Causes the Equilibrium