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      Question

      Consider an economy described by the following

      equations:  C = 100 + 0.6 ∗ (Y − T) (consumption function)  I = 200 − 1000 ∗ r (investment function)  G = T = 100 (government purchase and tax) where Y is the national income and r is the interest rate. Suppose the government purchase G is raised from 100 to 150, how much will this shift the IS curve to the right? 
      A 100 Correct Answer Incorrect Answer
      B 150 Correct Answer Incorrect Answer
      C 50 Correct Answer Incorrect Answer
      D 125 Correct Answer Incorrect Answer
      E 175 Correct Answer Incorrect Answer

      Solution

      Delta Y = Delta G times multiplier

      This will shift the IS curve to the right by

      50 / (1 − 0.6) = 125.

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