In a Normal IS-LM Framework, If Government Purchases and Taxes

question 45

Multiple Choice

In a normal IS-LM framework, if government purchases and taxes are both increased by the same amount, the level of output

• A)will increase by exactly that amount
• B)will remain the same but its composition will change
• C)will not change and neither will the composition of output
• D)will increase as will the interest rate
• E)will increase but only if this fiscal policy is accommodated by expansionary monetary policy

---

Definitions:

Insulated

Protected with a material that prevents heat, sound, or electricity from escaping or entering.

Square Feet

A measure of area equivalent to a square that is one foot on each side.

Irregularly-shaped

Describing an object or area that lacks a regular or uniform shape.

Random Points

Specific locations or values chosen without any particular pattern, order, or predictability.