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Suppose investment is a linear function of output and interest rate, I = b0 + b 1 Y - b 2 i. If investment is

Suppose investment is a linear function of output and interest rate, I = b0 + b 1 Y - b 2 i. "If investment is more sensitive to changes in the interest rate (so b2 is larger), the IS curve is flatter and fiscal policy is more effective." Is this statement true or false? Why? Please draw a diagram and use equations/algebra to explain. (10 marks)

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