Which of the following is a general rule for how demand shocks affect the IS curve?
A) Demand shocks will always show up as changes in the expected real exchange rate.
B) Demand shocks are usually rare and have little effect.
C) When any exogenous variable works to increase demand, IS shifts to the right and, conversely, when any exogenous variable works to decrease demand, IS shifts to the left.
D) When any exogenous variable works to increase demand, IS shifts to the left and conversely, when any exogenous variable works to decrease demand, IS shifts to the right.
Answer: C) When any exogenous variable works to increase demand, IS shifts to the right and, conversely, when any exogenous variable works to decrease demand, IS shifts to the left.
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