What happens to the variables if government spending changes.
Take, for instance, an increase in government spending. At each and every interest rate, the demand for goods and the equilibrium level of output and income are higher than before. This is indicated by a rightward shift of the IS curve. At the same interest rate government spending is higher, the demand for goods therefore increases and the level of output and income is higher. Since the level of output and income is higher the level of consumption spending and investment spending is higher. All the other autonomous spending components are unchanged.
