The Reason That the Income Response to a Fiscal Expansion

question 10

Multiple Choice

The reason that the income response to a fiscal expansion is generally less in the IS-LM model than it is in the Keynesian-cross model is that the Keynesian-cross model assumes that:

• A) investment is not affected by the interest rate whereas in the IS-LM model fiscal expansion raises the interest rate and crowds out investment.
• B) investment is not affected by the interest rate whereas in the IS-LM model fiscal expansion lowers the interest rate and crowds out investment.
• C) investment is autonomous whereas in the IS-LM model fiscal expansion encourages higher investment, which raises the interest rate.
• D) the price level is fixed whereas in the IS-LM model it is allowed to vary.

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A thin strip of metal or plastic embedded in paper currency and valuable documents as a measure against counterfeiting.