Question

In the context of the IS-LM model, a simultaneous increase in government spending and the money supply will most likely lead to:

Q: Answer-In the context of the IS-LM model, a simultaneous increase in government spending and the money supp...

An increase in government spending shifts the IS curve to the right, raising both output and interest rates. An increase in the money supply shifts the LM curve to the right, raising output but lowering interest rates. The combined effect is a definite increase in output, but the impact on the interest rate depends on the relative strength magnitude of the two policies, making it ambiguous.