Question: Use the IS-LM graph to determine the effects on the equilibrium level of income (output) and the interest rate of the following: (a) an increase

  1. Use the IS-LM graph to determine the effects on the equilibrium level of income (output) and the interest rate of the following:
  2. (a) an increase in government spending, and
  3. (b) an increase in taxes.
  4. Why do income and the interest rate move in the same direction?

  1. Explain the meaning of IS curve. Why does it have a negative slope? What factors determine the flatness or steepness of the IS curve?

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