Other things equal, a decrease in the Z factors ________ the equilibrium interest rate and ________ equilibrium output.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question

Quizplus · Accepted Answer

According to the IS-LM model, a decrease in the Z factor (which represents any variable that shifts the investment demand curve) shifts the IS curve to the left. This leads to a decrease in both the equilibrium interest rate and equilibrium output, as shown in the diagram below:

![IS-LM Diagram](https://i.imgur.com/kbGZSVQ.png)

Therefore, the correct choice is C (decreases; increases).

Other Things Equal, a Decrease in the Z Factors ________