Figure 4-6

-In Figure 4-6 above,suppose we are initially at point 2.A reduction in government spending causes income to change by ________ and the interest rate to change by ________ than would be the case in the Chapter 3 model.

Question

Figure 4-6
 
-In Figure 4-6 above,suppose we are initially at point 2.A reduction in government spending causes income to change by ________ and the interest rate to change by ________ than would be the case in the Chapter 3 model.

Quizplus · Accepted Answer

In the IS-LM model, a reduction in government spending shifts the IS curve to the left. Compared to the Chapter 3 model, which likely refers to a simpler Keynesian cross model, the presence of the LM curve in the IS-LM model means that the interest rate will change more due to the interaction between money supply and demand, while the change in income will be less pronounced due to the dampening effect of interest rate changes on investment and consumption.

Figure 4-6 -In Figure 4-6 Above,suppose We Are Initially at Point 2.A