An increase in investment demand for any given level of income and interest rates-due, for example, to more optimistic "animal spirits"-will, within the IS-LM framework, ______ output and ______ interest rates.
A) increase; lower
B) increase; raise
C) lower; lower
D) lower; raise

Question

Quizplus · Accepted Answer

An increase in investment demand will shift the IS curve to the right, which will lead to an increase in both output and interest rates. The increase in investment demand will increase the equilibrium level of output and also increase the demand for loanable funds, resulting in a higher interest rate.

An Increase in Investment Demand for Any Given Level of Income