FIGURE 10-8
An Increase in Government Purchases Shifts the IS Curve Outward Panel (a) shows that an increase in government purchases raises planned expenditure. For any given interest rate, the upward shift in planned expenditure of Δ
G leads to an increase in income
Y of Δ
G/(1 –
MPC). Therefore, in panel (b), the
IS curve shifts to the right by this amount.