QUESTION ONE [40] 1.1 An increase in consumption expenditure can have positive effects in an economy. Using the IS-LM model, explain the effect of this economic event on the real gross domestic product level and the real interest rate level. Choose the ONE correct diagram from below to motivate your answer. (15)

LM, LM- E D Rate of Interest IS X O National IncomeReal interest rate New equilibrium Old equilibrium New 13 curve Old 15 curve Real GDP Old New equilibrium equilibrium