At a point below the IS curve,
A)there is an excess supply of goods.
B)the real interest rate is below its equilibrium value.
C)saving exceeds investment.
D)there is a federal budget surplus.

Question

Quizplus · Accepted Answer

Below the IS curve, the demand for goods and services is less than their supply. This leads to lower prices and therefore a lower level of output. To encourage firms to invest, the real interest rate needs to be reduced below its equilibrium value, which is achieved with expansionary monetary policy.

At a Point Below the IS Curve