Suppose we assume , and the real interest rate falls to
) In this scenario of the IS curve, the economy would, in the short run:
A) remain at its long-run equilibrium.
B) have reduced output.
C) move from 1 percent below its potential to its long-run equilibrium.
D) move from its long-run equilibrium to 1 percent above its potential.
E) move from its long-run equilibrium to 1 percent below its potential.

Question

Suppose we assume  , and the real interest rate falls to 
) In this scenario of the IS curve, the economy would, in the short run:
A) remain at its long-run equilibrium. 
B) have reduced output. 
C) move from 1 percent below its potential to its long-run equilibrium. 
D) move from its long-run equilibrium to 1 percent above its potential. 
E) move from its long-run equilibrium to 1 percent below its potential.

Quizplus · Accepted Answer

The Answer of Suppose we assume  , and the real interest rate falls to 
) In this scenario of the IS curve, the economy would, in the short run:
A) remain at its long-run equilibrium. 
B) have reduced output. 
C) move from 1 percent below its potential to its long-run equilibrium. 
D) move from its long-run equilibrium to 1 percent above its potential. 
E) move from its long-run equilibrium to 1 percent below its potential.

Suppose We Assume , and the Real Interest Rate