An increase in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.
A) rise; MP; right
B) rise; IS; right
C) fall; IS; left
D) fall; MP; left

Question

Quizplus · Accepted Answer

An increase in government spending causes an increase in aggregate demand, which shifts the IS curve to the right, increasing equilibrium output. The MP curve is not directly affected by changes in government spending.

An Increase in Government Spending Causes the Equilibrium Level of Aggregate