Interest rate, r Assume the economy is initially in a short-run equilibrium at a level of output below the natural rate. Use the IS-LM model to graphically illustrate: a. The economy starts in equilibrium at 1. With no policy change the price level will eventually shifting The new long-run equilibrium will be at 2. If fiscal policy is used to restore the natural rate, will shift to and the new equilibrium will be at b. If no policy is used to restore full employment, the interest rate and the price level will be , investment will be If fiscal policy is used, the curve will shift to the The price level , but the long-run interest rate . This will the amount of private investment at the new equilibrium, Interest rate, r Assume the economy is initially in a short-run equilibrium at a level of output below the natural rate. Use the IS-LM model to graphically illustrate: a. The economy starts in equilibrium at 1. With no policy change the price level will eventually shifting The new long-run equilibrium will be at 2. If fiscal policy is used to restore the natural rate, will shift to and the new equilibrium will be at b. If no policy is used to restore full employment, the interest rate and the price level will be , investment will be If fiscal policy is used, the curve will shift to the The price level , but the long-run interest rate . This will the amount of private investment at the new equilibrium