In the long-run ISLM model, the long-run effect of an autonomous increase in investment is to
A)increase real output and the interest rate.
B)increase real output and not affect the interest rate.
C)not affect real output and increase the interest rate.
D)not affect real output and reduce the interest rate.

Question

Quizplus · Accepted Answer

In the long-run ISLM model, an autonomous increase in investment initially increases demand, which can push up interest rates due to higher demand for funds. However, in the long run, output returns to its natural level due to price adjustments, leaving the interest rate higher but not affecting the long-run output.

In the Long-Run ISLM Model, the Long-Run Effect of an Autonomous