The IS-LM model tells us that output remains constant when a tax cut is combined with ________ in the money supply,with the interest rate ________ its initial level.

Question

Quizplus · Accepted Answer

A tax cut increases aggregate demand, shifting the IS curve to the right. To keep output constant, the LM curve must shift left, which requires a decrease in the money supply. This action raises interest rates above their initial level.

The IS-LM Model Tells Us That Output Remains Constant When