Suppose the parameters of the IS curve are
,
,
and the real interest rate is initially R = 3%.
(a)Is the economy in its long-term equilibrium? Explain.
(b)Suppose the real interest rate falls to 2 percent;what happens to the short-run equilibrium,holding everything else constant?
(c)What happens to the short-run equilibrium if
falls 3 percent,holding everything else constant?

Question

Suppose the parameters of the IS curve are  
,  
,  
and the real interest rate is initially R = 3%.
(a)Is the economy in its long-term equilibrium? Explain.
(b)Suppose the real interest rate falls to 2 percent;what happens to the short-run equilibrium,holding everything else constant?
(c)What happens to the short-run equilibrium if  
falls 3 percent,holding everything else constant?

Quizplus · Accepted Answer

The Answer of Suppose the parameters of the IS curve are  
,  
,  
and the real interest rate is initially R = 3%.
(a)Is the economy in its long-term equilibrium? Explain.
(b)Suppose the real interest rate falls to 2 percent;what happens to the short-run equilibrium,holding everything else constant?
(c)What happens to the short-run equilibrium if  
falls 3 percent,holding everything else constant?

Suppose the Parameters of the IS Curve Are