The economy shifts from A to B. If fiscal policy is loosened and the government raises the budget deficit, then the positive effect on output is amplified. In that case, the fiscal expansion shifts the IScurve to the right, as shown by the yellow dashed line, and the economy settles at point C. Here output is higher than if fiscal policy remained constant.
Now let’s look at the opposite case. If fiscal policy is tightened and the budget deficit reduced, for example through a tax hike, the positive change in output brought about by the monetary expansion will be more muted. In that case, the fiscal tightening leads to a leftward shift of the IS curve and output falls.