Assume That the Economy Is in Equilibrium at an Interest

Multiple Choice

Assume that the economy is in equilibrium at an interest rate and level of national income where the IS curve cuts the LM curve. A large cut in government spending would be expected to:

A) increase interest rates and the level of national income.
B) reduce interest rates but increase the level of national income.
C) reduce interest rates and the level of national income.
D) shift the IS curve to the right.
E) leave the economy in an unchanged position because the marginal propensity to consume is constant.