Everything else held constant,changes in the interest rate affect planned investment spending and hence the equilibrium level of output,but this change in investment spending
A)merely causes a movement along the IS curve and not a shift.
B)is crowded out by higher taxes.
C)is crowded out by higher government spending.
D)is crowded out by lower consumer expenditures.

Question

Quizplus · Accepted Answer

Changes in the interest rate affect planned investment spending and move along the IS curve causing a shift only if there is a change in other factors like government spending or taxes. Therefore, a change in investment spending merely causes a movement along the IS curve and not a shift. The other options (B, C, D) refer to the concept of crowding out which is a separate issue related to government spending and financing.

Everything Else Held Constant,changes in the Interest Rate Affect Planned