In an IS-LM model, an increase in autonomous spending

Question

Quizplus · Accepted Answer

An increase in autonomous spending will shift the IS curve outward, leading to an increase in income and the interest rate. This is because an increase in autonomous spending leads to an increase in aggregate demand which increases income, and this, in turn, increases the demand for money, causing a rise in interest rates to restore equilibrium in the money market. Therefore, choices A, B, and D are incorrect. Choice E is also incorrect as an increase in autonomous spending would shift the IS curve, not cause a movement along it.

In an IS-LM Model, an Increase in Autonomous Spending