Use the following to answer questions : Exhibit: IS*-LM* -(Exhibit: IS*-LM*) A small open economy with a fixed exchange rate e₂is initially at equilibrium A with $I S _ { 1 } ^ { * }$ $L M _ { 1 } ^ { * }$ and equilibrium output Y₁. If there is an increase in government spending to $I S _ { 2 } ^ { * }$ the new equilibrium will be at ____, holding everything else constant. A) A B) B C) C D) D

Question

Quizplus · Accepted Answer

In a small open economy with a fixed exchange rate, an increase in government spending shifts the IS curve to the right from $IS_1^*$ to $IS_2^*$. The new equilibrium will be at point C, where the new IS curve intersects the original LM curve.

Use the Following to Answer Questions : Exhibit: IS*-LM IS1∗I S _ { 1 } ^ { * }IS1∗​

Use the Following to Answer Questions :
Exhibit: IS-LM $I S _ { 1 } ^ { }$