Refer to the following figure when answering
Figure 11.5: IS Curve
-Consider Figure 11.5. If the economy initially is at its long-run equilibrium and the real interest rate decreases, the economy:
A) moves from point b to point a
B) moves from point d to point a
C) moves from point d to point c
D) moves from point c to point d
E) moves from point d to point b

Question

Refer to the following figure when answering  
Figure 11.5: IS Curve 
-Consider Figure 11.5. If the economy initially is at its long-run equilibrium and the real interest rate decreases, the economy:
A) moves from point b to point a 
B) moves from point d to point a 
C) moves from point d to point c 
D) moves from point c to point d 
E) moves from point d to point b

Quizplus · Accepted Answer

A decrease in real interest rates causes an increase in investment and aggregate demand, leading to an increase in output and a shift in the IS curve to the right. This shift moves the economy from point d to point c, where output is above potential output.

Refer to the Following Figure When Answering