Refer to the following figure when answering the following questions.
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 moves from point ________ to point ________.
A) b; a
B) d; a
C) d; c
D) c; d
E) d; b

Question

Refer to the following figure when answering the following questions.
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 moves from point ________ to point ________.
A) b; a 
B) d; a 
C) d; c 
D) c; d 
E) d; b

Quizplus · Accepted Answer

A decrease in the real interest rate would typically stimulate investment spending, shifting the aggregate demand curve to the right. This would move the economy from a long-run equilibrium point (where the aggregate demand intersects the long-run aggregate supply) to a higher output, short-run equilibrium point. Assuming point d represents the initial long-run equilibrium and point c represents the higher output, short-run equilibrium, the correct movement is from d to c.

Refer to the Following Figure When Answering the Following Questions