Question

Starting with a graph of the goods market and progressing using the IS-LM diagram show graphically...

Starting with a graph of the goods market and progressing using the IS-LM
diagram show graphically and explain how an increase in government spending
affects overall macroeconomic equilibrium.

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Answer #1

Increase in government spending shifts IS curve rightward. New equilibrium reaches at e' where equilibrium real GDP is higher at Y' and equilibrium interest rate increases to i'.

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