Exhibit: Policy Interaction Based on the Graph, Starting from Equilibrium

question 36

Multiple Choice

Exhibit: Policy Interaction Based on the graph, starting from equilibrium at interest rate r₃, income Y₂, IS₁, and LM₁, if there is an increase in government spending that shifts the IS curve to IS₂, then in order to keep the interest rate constant, the Bank of Canada should _____ the money supply, shifting to _____.

• A)increase; LM₂
• B)decrease; LM₂
• C)increase; LM₃
• D)decrease; LM₃

---

Definitions:

Annual Net Cash Inflows

The amount of cash that an investment or project generates after accounting for all outflows and inflows over a year.

Net Cash Inflows

The total amount of cash entering a company, typically during a specific period, after all cash outflows have been subtracted.

Operating Income

Earnings before interest and taxes, representing the profit gained from a firm's core business operations.

Cash Payback Period

The duration of time it takes for an investment to generate cash flows sufficient to recover the initial investment cost.