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Suppose the parameters of the IS curve are: a = 0; b = 0.25; r = 2.5%, and the economy faces a real interest rate
Suppose the parameters of the IS curve are: a = 0; b = 0.25; r = 2.5%, and the economy faces a real interest rate of 2.5%. Show st_ey_ st_ep how to derive the IScurve from the national income accounting identity, then explain what happens to shortrun output in each of the following cases: 1. aC increases by 5 percentage points. 2. ag decreases by 1 percentage point. 3. The real interest rate rises from 2.5% to 5%. 4. Potential output increases by 10%
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