Which one of the following bestdescribes the process of a contractionary fiscal

Question

Which one of the following bestdescribes the process of a contractionary fiscal policy?

a.Aggregate expenditure falls, leading to a fall in real GDP, leadingto a fall in money demand, leading to a fall in the rate ofinterest, leading to an offsetting rise in real GDP.

b.Aggregate expenditure rises, leading to a rise in real GDP, leadingto a rise in money supply, leading to a fall in the rate ofinterest, leading to a further rise in real GDP.

c.Aggregate expenditure falls, leading to a rise in real GDP, leadingto a rise in money demand, leading to a fall in the rate ofinterest, leading to a further rise in real GDP.

d.Aggregate expenditure falls, leading to a fall in real GDP, leadingto a rise in money demand, leading to a fall in the rate ofinterest, leading to an offsetting rise in real GDP.

e.Aggregate expenditure rises, leading to a rise in real GDP, leadingto a rise in money demand, leading to a rise in the rate ofinterest, leading to an offsetting fall in real GDP.

Explanation / Answer

In the language of some first courses in macroneconomics, itshifts the IS curve (investment/saving curve) to the left

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