Question

related in the goods and related 1. Equilibrium levels of income and interest rates are services market, and equilibrium levels of income and interest rates are in the market for real money balances. A) positively; positively B) positively; negatively C) negatively; negatively D) negatively; positively 2. Exhibit: IS-LM Fis cal Policy Interest rate, r LM IS3 IST IS Y2 Y Income, Output, Y Based on the graph, starting from equilibrium at interest rate ri and income Yı, an increase in government spending would generate the new equilibrium combination of interest rate and income: A) r2, Y2 В) гз, Y, С) r, Yз D) r3, Yз

Answer 1

Q1
ANswer
Option D
the increase in the interest rate in the goods market decreases the consumption and investment spendings which decreases the AD and decreases real output means the increase in interest rate decreases real output

the increase in the interest rate in the money balances increases the real output as it is direct relationship between it.
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Q2
Answer
Option C
the increase in government spending increases the IS curve and shifts it to the right which increases both interest rate and the real output to r2 and Y3