Economics · IS-LM Model
Consider a closed economy operating under a vertical LM curve. A debt-financed increase in government expenditure will:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Leave both aggregate output and interest rates completely unchanged
- 2Increase both aggregate output and interest rates simultaneously
- 3Increase equilibrium interest rates with no change in aggregate output✓
- 4Increase total output without affecting equilibrium interest rates
Correct answer
Increase equilibrium interest rates with no change in aggregate output
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