In the IS-MP framework a contractionary 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 IS-MP framework, a contractionary fiscal policy shifts the IS curve to the left, leading to a decrease in aggregate output and a decrease in the interest rate, assuming the MP curve remains unchanged.

In the IS-MP Framework a Contractionary Fiscal Policy Causes Aggregate