Refer to the following figure when answering the following questions.
Figure 20.3: IS Curve
-Consider Figure 20.3. If the economy initially is at its long-run equilibrium and the domestic real interest rate decreases, the economy moves from point ________ to point ________.

Question

Refer to the following figure when answering the following questions.
Figure 20.3: IS Curve 
-Consider Figure 20.3. If the economy initially is at its long-run equilibrium and the domestic real interest rate decreases, the economy moves from point ________ to point ________.

Quizplus · Accepted Answer

In the IS-LM model, a decrease in the domestic real interest rate shifts the IS curve to the right. As a result, the economy moves from point d to point c, where output is higher and the real interest rate is lower. Point e represents a short-run equilibrium with even higher output but a higher real interest rate, which is not reached unless there is further monetary policy action or shocks to the economy.

Refer to the Following Figure When Answering the Following Questions