Answer to Question #210512 in Macroeconomics for Div

Question

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? In which direction would the

 schedule shift, and by how many units?

Answer 1

In this case, the government consumption would have decreased. The money supply would have decreases as well as lower rate of interest within the operations. This makes the IS-schedule to flatten as it shifts towards the left side. This is based on the idea that at any output level, less supply of money impacts lower rate of interest. This may make the units to shift by more than 30 units