Figure 10.3 Panel (a) Panel (b) -Refer to Figure 10.3..A positive demand shock accompanied by a decrease in the real interest rate is best represented by ________ in panel (a)and ________ in panel (b). A) a shift from AE₂ to AE₃; a movement from point B to point C B) a shift from AE₃ to AE₂; a shift from IS₂ to IS₁ C) a shift from AE₁ to AE₂; a movement from point A to point B D) a shift from AE₁ to AE₃; a movement from point A to point C

Question

Quizplus · Accepted Answer

A positive demand shock would shift the AE curve to the right from AE₁ to AE₃. The decrease in real interest rates would shift the IS curve down from IS₁ to IS₂. This would result in a movement from point A to point C in panel (a) and a movement from point A to point C in panel (b). Therefore, choice D is the correct answer.

Figure 10.3 Panel (A) Panel (B)