If the saving rate increases in the IS-MP model, then in the new equilibrium:
A)GDP increases.
B)public spending will decrease.
C)growth becomes positive.
D)output declines.

Question

Quizplus · Accepted Answer

In the IS-MP model, an increase in the saving rate leads to a decrease in consumption, which in turn reduces aggregate demand. This reduction in aggregate demand causes output (GDP) to decline in the new equilibrium.

If the Saving Rate Increases in the IS-MP Model, Then