Essay
Suppose the parameters of the IS curve are 
, and the real interest rate is initially 
.
(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?
(d) What occurs if the marginal product of capital rises to 5 percent, holding everything else constant? What would cause this to happen?
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Begin with the IS curve: 
(a) in LR equ...View Answer
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Correct Answer:
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(a) in LR equ...View Answer
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