The IS curve shifts to the left when
A)taxes increase.
B)government spending increases.
C)the money supply increases.
D)autonomous planned investment spending increases.

Question

Quizplus · Accepted Answer

The IS curve shows the negative relationship between the real interest rate and real GDP. When taxes increase, disposable income decreases, leading to a decrease in consumption expenditure. This, in turn, reduces aggregate demand and leads to a decrease in real GDP at each interest rate. Therefore, the IS curve shifts to the left.

The IS Curve Shifts to the Left When