Suppose We Assume $\bar { a } = 0 , \bar { b } = 1 , R _ { t } = \bar { r } = 5 \%$

Multiple Choice

Suppose we assume $\bar { a } = 0 , \bar { b } = 1 , R _ { t } = \bar { r } = 5 \%$ , and the real interest rate falls to $R _ { t } ^ { \prime } = 4 \%$ ) 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