Question

1.

a) If the level of government spending were to decrease by 100 units in the IS – LM schedule

 model, how would this affect the position of the IS schedule?

b) In which direction would the

 schedule shift, and by how many units? ( 1+3=4 marks)

Answer 1

For every given rate, reduced government expenditure reduces output. The IS curve is shifted to the left as a result of this. There will be a 100-unit reduction in output.