Answer to Question #302728 in Macroeconomics for john

Question

Comparing the impact of a decrease in government spending in the goods market model with the impact of a decrease in government spending in the IS-LM model:

Answer 1

Under the IS-LM model, a decrease in government spending will result in a decrease in output, with the IS curve shifting to the left. In addition, it will reduce the desire for money. The IS curve would shift to the left if government spending was decreased. Now that we have it in our toolkit, we can consider how a shift in government spending can affect our IS-LM model's equilibrium point. As a result, if government spending increases, the IS curve will shift to the right.