Interest rate, LM IS 1 IS IS Y2 Y Y3 Income, Output, Y Reference: Ref 11-1 (Exhibit: /S-LM Fiscal Policy) Based on the graph, starting from equilibrium at interest rate r1 and income Y1, a decrease in government spending would generate the new equilibrium combination of interest rate and income: Or2, Y3 13, Y2 Or3, Y3 Or2, Y2