101-islm-extra - REVISION OF ISLM What effect does a rise...

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REVISION OF ISLM What effect does a rise in government spending have on an ISLM economy? increase in government spending → increase in planned injections → negative unplanned investment (stocks go down) → increase in output → increase in transactions demand for money → decrease in speculative demand for money → increase in interest rate → decrease in investment → some crowding out which leads to the increase in output being more modest than it would otherwise be What effect does a cut in the income tax rate have on an ISLM economy? cut in income tax rate → increase in disposable income → increase in consumption → negative unplanned investment (stocks go down) → increase in output increase in transactions demand for money → decrease in speculative demand for money → increase in interest rate → decrease in investment → some crowding out which leads to the increase in output being more modest than it would otherwise be What effect does an increase in money supply have on an ISLM economy?
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