I asked a question yesterday, but I don't think the answer was right. The question was to explain with reference to the IS curve.

One scenario was that "Because of high household indebtedness, household mortgages in Australia are suddenly deemed much riskier." The answer provided was "This means that the interest rate charged will increase because of the high default risk for the highly indebted Australians. This means that the consumption will be hampered and the AD will decline. This means that the IS curve shifts to the left and the national output will decline as well." Doesn't this scenario affect R (the interest gap), therefore decreasing the output, rather than hampered consumption?

Another scenario was that "the long-run interest rate rises". The answer provided was "The investment demand for money will drop since it is more expensive to borrow with higher interest rates over the long run. This means that the AD will decline while the investments undertaken by the firms will drop. This means IS curve shifts to the left and the Australian national output declines." Doesn't this scenario increase r (the interest gap), therefore increasing the output, rather than decreasing the output?