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Consider the short-run model. Suppose the economy starts in a situation where there are no AD shocks (normal-times AD) and the real interest rate is
Consider the short-run model. Suppose the economy starts in a situation where there are no AD shocks (normal-times AD) and the real interest rate is equal to the MPK. Suppose that the government increases its purchases to launch a large infrastructures program. Assuming the Fed keeps the interest rate unchanged, which curve will shift in the IS-MP diagram and how?
a-The MP curve will shift up.
b-The PC curve will shift up.
c-The IS curve will shift to the left.
d-The IS curve will shift to the right.
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