Question

According to the IS-LM model, which of the following statements is true? a. Contractionary monetary policy...

According to the IS-LM model, which of the following statements is true?

a.

Contractionary monetary policy tends to decrease GDP and decrease the interest rate.
b.

An increase in government expenditure tends to increase GDP and increase the interest rate.
c.

Expansionary monetary policy reduces the monetary base in the economy.
d.

None of the above.
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Answer #1

Answer = correct option is B

Reason = According to IS-LM model Increase in government spending lead to increase in investment which will result in increase in GDP. Also interest rates will rise because government need more money to fund its expenditure.

Other option are wrong because

  • Contractionary monetary policy tends to decrease in GDP and increase in interest rates Hence option A incorrect
  • Expansionary monetary policy increases the monetary base in the economy. Hence option c is incorrect

PLEASE GIVE YOUR VALUABLE REVIEWS ABOUT THE ANSWER IN THE COMMENT BOX AND YOU CAN ALSO GIVE THUMBS UP IF YOU LIKE THE ANSWER. THANK YOU

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