Explain How an Increase in the Real Interest Rate,with No

question 82

Essay

Explain how an increase in the real interest rate,with no changes to other factors that affect aggregate expenditure,impacts aggregate expenditure and how this interest rate increase is shown on the IS curve.How would this change if there was a negative demand shock with no change in the real interest rate? Show both situations using graphs for aggregate expenditure and the IS curve.

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Definitions:

Aleutian Islands

A chain of volcanic islands located in the northern Pacific Ocean, extending from Alaska towards Russia.

Bering Sea

A marginal sea of the Pacific Ocean between Alaska and Russia, known for its deep basin and diverse marine life.

Suspended Sediment

Particles of soil or minerals that are carried by water and remain floating in the column rather than sinking to the bottom.

Northeastern Australia

A region of Australia located in the northeast part of the continent, known for its diverse ecosystems, including the Great Barrier Reef.