When the multiplier is included in the IS curve, a change in the real interest rate has a larger impact on short-run fluctuations than with the standard IS curve.

Question

Quizplus · Accepted Answer

Including the multiplier in the IS curve means that changes in autonomous spending have a larger impact on output, so a change in the real interest rate (which affects investment and consumption) will also have a larger impact on short-run fluctuations in output.

When the Multiplier Is Included in the IS Curve, a Change