Which of the following actions will shift the IS curve to the left?A.Increasing government spending on public transport.B.Implementing expansionary fiscal policy.C.Raising tax offsets.D.Raising tax rates.
Question
Which of the following actions will shift the IS curve to the left?A.Increasing government spending on public transport.B.Implementing expansionary fiscal policy.C.Raising tax offsets.D.Raising tax rates.
Solution
The IS curve, or Investment-Savings curve, represents equilibrium in the goods market in the Keynesian cross model. It shows different combinations of interest rates and output at which the goods market is in equilibrium.
The IS curve shifts due to changes in fiscal policy, such as government spending and taxes.
A. Increasing government spending on public transport - This would actually shift the IS curve to the right, not the left. This is because an increase in government spending increases aggregate demand, leading to a higher level of output and income.
B. Implementing expansionary fiscal policy - This would also shift the IS curve to the right. Expansionary fiscal policy involves either an increase in government spending or a decrease in taxes, both of which increase aggregate demand and output.
C. Raising tax offsets - This would likely shift the IS curve to the right, not the left. Tax offsets reduce the amount of tax that individuals or businesses have to pay. If tax offsets are raised, people have more disposable income to spend, which increases aggregate demand and shifts the IS curve to the right.
D. Raising tax rates - This is the correct answer. Raising tax rates decreases disposable income, which reduces consumption and investment, leading to a decrease in aggregate demand. This shifts the IS curve to the left.
Similar Questions
A decrease in taxes or an increase in government spending will:shift the IS curve to the right.shift the IS curve to the left.cause the IS curve to fluctuate.not affect the IS curve.
In a closed economy, the government increases the same amount of government expenditure and taxes, how will the IS curve and LM curve shift?A.IS curve shifts to the right, LM curve is unchanged.B.IS curve shifts to the left, LM curve is unchanged.C.IS curve is unchanged, LM curve shifts to the right.D.IS curve is unchanged, LM curve shifts to the left.
Consider the IS relation for an economy with both government and external sectors. Which of the following statements is correct?Group of answer choicesA rise in the marginal tax rate combined with a fall in the responsiveness of investment to the rate of interest might reduce, or it might increase or it might leave unchanged the slope of IS curve.An increase in the marginal propensity to import should lead to a parallel shift to the left in the IS curve.A rise in the marginal propensity to consume together with a rise in exogenous taxation should shift the IS curve leftwards as well as making it flatter.An increase in the income-expenditure multiplier combined with a reduction in the responsiveness of investment to the rate of interest would definitely make the IS curve flatter.
Under a floating exchange rate system, what will happen about the IS* curve if the government implements the expansionary fiscal policy?A.IS* curve will shift right.B.IS* curve will shift left.C.IS* remain unchanged.D.IS* curve will shift right and then shift left.
Which of the following occurs as the economy moves leftward along a given IS curve?Select one:A.A reduction in the interest rate causes a reduction in the money supply.B.An increase in the interest rate causes investment spending to decrease.C.A reduction in the interest rate causes money demand to increase.D.A reduction in taxes causes a reduction in demand for goods.E.An increase in government spending causes a reduction in demand for goods.
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