In the Keynesian model,suppose the Fed wants to keep output unchanged.If the IS curve shifts to the left,and the Fed acts to keep output unchanged,then
A)taxes will increase.
B)the money supply will decline.
C)the real interest rate will decrease.
D)taxes will decrease.

Question

Quizplus · Accepted Answer

When the IS curve shifts to the left in the Keynesian model, it indicates a decrease in aggregate demand. To keep output unchanged, the Fed can lower the real interest rate by increasing the money supply. This encourages investment and spending, offsetting the decrease in demand represented by the leftward shift of the IS curve.

In the Keynesian Model,suppose the Fed Wants to Keep Output