When the government increases its expenditures under fixed exchange
rates, the IS curve
1. will shift to the right if the goods produced
by the government are not perfect substitutes for privately produced goods
and there is less than full employment.
2. will shift to the right if those paying the
taxes that finance the expenditure have a higher marginal propensity to
consume than those receiving the benefits.
3. will shift to the right permanently even if
there is price flexibility and full employment.
4. will always shift to the right.
Choose the correct option.