In the ISLM framework,an expansionary fiscal policy causes aggregate output to ________ and the interest rate to ________,everything else held constant.
A)increase;increase
B)increase;decrease
C)decrease;decrease
D)decrease;increase

Question

Quizplus · Accepted Answer

In the ISLM model, an expansionary fiscal policy, such as an increase in government spending or a decrease in taxes, shifts the IS curve to the right. This results in an increase in aggregate output (or income) and an increase in the interest rate, as the equilibrium moves to a point with higher output and higher interest rates on the ISLM diagram.

In the ISLM Framework,an Expansionary Fiscal Policy Causes Aggregate Output