If the level of government transfer payments increases while everything else stays the same, then

Question

Quizplus · Accepted Answer

An increase in government transfer payments will increase disposable income, causing an increase in consumption and aggregate demand. This will shift the IS-curve to the right as there will be an increase in the equilibrium level of output and interest rates. The LM-curve will stay the same because there is no change in the money supply or demand for money.

If the Level of Government Transfer Payments Increases While Everything