Which of the followings are the effects of increase in government spending in IS–LM framework in a…

In a closed-economy IS-LM model, an increase in government spending (ΔG > 0) has the following effects: (A) It increases income (shifting the IS curve horizontally by the expenditure multiplier times ΔG, and raising equilibrium income by the IS-LM fiscal policy multiplier times ΔG). (B) The rightward shift of the IS curve creates disequilibrium (excess demand for money) in the money market at the initial interest rate because output and income have risen. (C) Higher income increases the transactions demand for money, so the quantity of money demanded is higher at the initial interest rate, which bids up the interest rate. Statement D is false because the equilibrium interest rate increases rather than decreases, and Statement E is false because the higher interest rate crowds out (reduces) private investment. Since Statements D and E are false, (A, B and C Only) is the only valid choice.