1. Describe the impact of an increase in Government spending and Taxes of the same proportion on the IS curve, starting at an initial equilibrium in the Keynesian Cross.

a.- the IS curve shifts to the right.

b.- the IS curve shifts to the left.

c.- the IS curve moves along an upward path.

d.- the IS curve moves along a downward path.

2. Given the change in terms of output in the Keynesian Cross, what will happen with the equilibrium interest rate in the Money Market and then on the LM curve?

a.- the equilibrium interest increases and the LM curve shifts to the right.

b.- the equilibrium interest decreases and the LM curve shifts to the left.

c.- the equilibrium interest increases and the LM curve moves along an downward path.

d.- the equilibrium interest increases and the LM curve moves along an upward path.

3. Such change coming from the Money Market will then affect the Keynesian Cross and the Money Market once more time, to then create an equilibrium in the IS-LM model where the equilibrium interest rate is

a.- higher than the initial level, just like equilibrium output.

b.- higher than the initial level, but equilibrium output return to its initial level.

c.- lower than the initial level, just like equilibrium output.

d.- lower than the initial level, but equilibrium output return to its initial level.

\fSM LM DM IS M Mo Y P Yo Po Y=E EA PE Y Yo