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In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to _____, and the IS curve to shift to the _____, everything else held constant
In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to _____, and the IS curve to shift to the _____, everything else held constant.
a) rise; left
b) rise; right
c) fall; left
d) fall; right
Expert Solution
The correct answer is b) rise; right
This is because the Keynesian analyzes shows the relation between the output and price level. The IS curve shows the investment relation in the economy. If the investment is higher, then the IS will shift rightward as IS curve is an upward sloping curve. An increase in demand leads to an increase in the economic output level due to an increased demand for economic products and services.
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