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

Question 8

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Exhibit: Policy Interaction Exhibit: Policy Interaction Based on the graph, starting from equilibrium at interest rate r<sub>3</sub>, income Y<sub>2</sub>, IS<sub>1</sub>, and LM<sub>1</sub>, if there is an increase in government spending that shifts the IS curve to IS<sub>2</sub> and the Bank of Canada does not change the money supply, the new equilibrium combination of interest and income will be _____. A) r<sub>1</sub>, Y<sub>2</sub> B) r<sub>2</sub>, Y<sub>3</sub> C) r<sub>3</sub>, Y<sub>3</sub> D) r<sub>3</sub>, Y<sub>4</sub> 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 and the Bank of Canada does not change the money supply, the new equilibrium combination of interest and income will be _____.


A) r1, Y2
B) r2, Y3
C) r3, Y3
D) r3, Y4

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