In the IS-LM model, a decrease in government purchases leads to a(n) ______ in planned expenditures, a(n) ______ in total income, a(n) ______ in money demand, and a(n) ______ in the equilibrium interest rate.
A) decrease; decrease; decrease; decrease
B) increase; increase; increase; increase
C) decrease; decrease; increase; increase
D) increase; increase; decrease; decrease

Question

Quizplus · Accepted Answer

In the IS-LM model, a decrease in government purchases reduces planned expenditures, which leads to a decrease in total income. This in turn reduces money demand and ultimately leads to a decrease in the equilibrium interest rate.

In the IS-LM Model, a Decrease in Government Purchases Leads