What Are Shocks? How Do Shocks Respond to the IS

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The Answer is Shocks are disturbances other than monetary and fiscal policies that cause shifts to the IS and LM curves. Shocks to the IS curve are exogenous changes in the demand for goods and services. The fall in investment reduces planned expenditure and shifts the IS curve to the left, reducing income and employment. A rise in the consumption function increases planned expenditure and shifts the IS curve to the right, which raises income.
Shocks to the LM curve are exogenous changes in money supply. An increase in the money demand shifts the LM curve upward, which tends to raise the interest rate and depress income.

What Are Shocks? How Do Shocks Respond to the IS

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What Are Shocks? How Do Shocks Respond to the IS

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