Refer to the following figure when answering the following questions.
Figure 20.3: IS Curve
-Consider Figure 20.3. If the economy initially is at its long-run equilibrium and the domestic real interest rate increases, the economy moves from point ________ to point ________.

Question

Refer to the following figure when answering the following questions.
Figure 20.3: IS Curve 
-Consider Figure 20.3. If the economy initially is at its long-run equilibrium and the domestic real interest rate increases, the economy moves from point ________ to point ________.

Quizplus · Accepted Answer

If the domestic real interest rate increases, investment decreases, causing a leftward shift of the IS curve. This leads to a reduction in output, causing the economy to move from point d to point b.

Refer to the Following Figure When Answering the Following Questions