Which of the following statements is consistent with a given IS curve?

Question

Quizplus · Accepted Answer

The IS curve represents the relationship between interest rates and output. Specifically, it shows the combinations of interest rates and output levels that result in goods and services markets being in equilibrium. An increase in the interest rate will cause investment spending to decrease, which in turn will lead to a decrease in output. This relationship is captured by the downward sloping IS curve. Option A is not consistent with the IS curve as the curve is not directly related to money demand. Option B is not consistent since an increase in taxes reduces disposable income and hence demand for goods. Option C is not consistent since an increase in government spending will increase demand for goods. Option E is not consistent since a change in interest rates does not directly affect the money supply.

Which of the Following Statements Is Consistent with a Given