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Macroeconomics

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Moderate

Stabilization Policy in IS-LM Framework

MACRO-EN5TIO

A Keynesian economist is recommending an increase in government spending and an increase in the money supply to reduce unemployment during a recession. Using the IS-LM framework what will be the results of this policy combination?

A

An increase in GDP with an indeterminate impact on the interest rate.

B

An increase in GDP, a decrease in the price level, and an increase in the real wage.

C

A decrease in GDP and an increase in the interest rate.

D

An indeterminate impact on GDP and a decrease in the interest rate.