An increase in the spending multiplier causes the IS curve to:
A)become steeper.
B)become flatter.
C)shift temporarily to having a positive slope.
D)shift to the left.

Question

Quizplus · Accepted Answer

The spending multiplier amplifies the impact of fiscal policy on aggregate demand. A higher spending multiplier means that for a given change in fiscal policy (e.g., an increase in government spending or a tax cut), aggregate demand increases by more, making the IS curve flatter. This is because the IS curve represents the relationship between the interest rate and the level of income that brings the goods market into equilibrium, and a higher multiplier means a larger change in income for any given change in interest rates.

An Increase in the Spending Multiplier Causes the IS Curve