Question

Factors that cause IS-LM to shift and the impact shifts have on r and Y.

Answer 1

Factors affecting IS curve are government spending, net exports, investment spending and consumption spending which itself is affected by transfers and tax rate.

Increase in government spending, net exports, investment spending or consumption spending shifts IS curve to the right resulting in higher level of Y and interest rate.

Decrease in the given factors shift the IS curve to the left leading to lower Y and r.

Factors affecting LM curve- supply and demand of money.

Increase in supply or demand for money increases LM curve and shifts it to the right leading to increase in Y and decrease in r.

Similarly decrease in supply or demand for money decreases LM curve shifting it to the left leading to decrease in Y and increase in r.