Consider two economies with the following IS curves, denoted 1 and 2:
IS₁:
IS₂:
Given these two curves, the economies are identical except that they respond to interest rate changes differently. Suppose we assume
) If the real interest rate in each economy falls to
Then:

Question

Consider two economies with the following IS curves, denoted 1 and 2:
IS₁:

Consider two economies with the following IS curves, denoted 1 and 2: IS<sub>1</sub>: IS<sub>2</sub>: Given these two curves, the economies are identical except that they respond to interest rate changes differently. Suppose we assume ) If the real interest rate in each economy falls to Then: A) Country 1 will move from its long-run equilibrium to 1 percent above its potential and Country 2 will move from its long-run equilibrium to 0.5 percent above its potential. B) Country 1 will move from its long-run equilibrium to 1 percent above its potential and Country 2 will move from its long-run equilibrium to -0.5 percent below its potential. C) Country 1 will move from its long-run equilibrium to -1 percent below its potential and Country 2 will move from its long-run equilibrium to 0.5 percent above its potential. D) Country 1 will move from 0.5 percent below its potential to its long-run equilibrium and Country 2 will move from its long-run equilibrium to 2 percent above its potential. E) neither country will move away from its long-run equilibrium.

IS₂:

Given these two curves, the economies are identical except that they respond to interest rate changes differently. Suppose we assume

) If the real interest rate in each economy falls to

Then:

Quizplus · Accepted Answer

The Answer of Consider two economies with the following IS curves, denoted 1 and 2: IS₁: IS₂: Given these two curves, the economies are identical except that they respond to interest rate changes differently. Suppose we assume ) If the real interest rate in each economy falls to Then:

Consider Two Economies with the Following IS Curves, Denoted 1