Question

Which of the following is/are the shock(s) to the IS curve?

• A. Changes in the demand for consumer goods
• B. Self-fulfilling waves of optimism and pessimism of the agents in the economy
• C. Exogenous changes in the demand for money
• D. Changes in the government purchases

Hint:

The IS curve is sensitive to changes in demand for goods, government spending, and consumer sentiment.

Answer 1

The Correct Option is A, B, D

Step 1: Understand the IS curve.
The IS curve represents equilibrium in the goods market, where investment equals savings. Shocks to the IS curve typically affect aggregate demand.
Step 2: Analyze each option.
- Option (A) is correct because changes in the demand for consumer goods affect aggregate demand, and thus shift the IS curve.
- Option (B) is correct because changes in expectations of future economic conditions (optimism/pessimism) can influence investment and consumption, shifting the IS curve.
- Option (C) is incorrect because changes in the demand for money are typically a shock to the LM curve (liquidity preference-money supply).
- Option (D) is correct because changes in government purchases directly affect aggregate demand and hence the IS curve.
Final Answer: \[ \boxed{\text{(A), (B), and (D) are shocks to the IS curve.}} \]