Suppose that business pessimism reduces investment such that aggregate demand becomes less than full employment income at all non-negative rates of interest. Use IS–LM analysis to answer the following:

(a) Are there positive equilibrium levels of y, r and P in the neoclassical model?

(b) Are there positive equilibrium levels of y, r and P in the Keynesian fixed-price model? In the Keynesian nominal wage model (without fixed prices)?

What processes will take the economy to these levels?