Question

In: Economics

Match the specified effect on the IS curve with the appropriate cause       -   ...

Match the specified effect on the IS curve with the appropriate cause

      -       A.       B.       C.       D.   

A fiscal policy that shifts the IS curve right
      -       A.       B.       C.       D.   

a monetary policy that shifts the IS curve left
      -       A.       B.       C.       D.   

a change in investor sentiment that shifts the IS curve right
      -       A.       B.       C.       D.   

A fiscal policy that shifts the IS curve to the left
A.

increase in government spending
B.

None
C.

bullishness
D.

increase in taxes

Solutions

Expert Solution

(A) Increase in government spending. A fiscal policy that shifts the IS curve right  

An increase in government spending is an expansionary fiscal policy tool that shifts the IS curve right.

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(B) None. A monetary policy that shifts the IS curve left.

Monetary policy does not cause any change in the IS curve.

------------------------------------------------------------------------------------------------------------------------------------

(C) Bullishness. A change in investor sentiment that shifts the IS curve right.

When an investor becomes confident or optimistic about the future prospects of the market then they increase the investment in the market and hence IS curve shifts to the right.

------------------------------------------------------------------------------------------------------------------------------------

(D) Increase in taxes. A fiscal policy that shifts the IS curve to the left.

Increase in taxes is a contractionary fiscal policy tool which shifts the IS curve to the left.

Rahul Sunny answered 6 months ago
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