Suppose the Parameters of the IS Curve Are

question 93

Essay

Suppose the parameters of the IS curve are
,
,
and the real interest rate is initially R = 3%.
(a)Is the economy in its long-term equilibrium? Explain.
(b)Suppose the real interest rate falls to 2 percent;what happens to the short-run equilibrium,holding everything else constant?
(c)What happens to the short-run equilibrium if
falls 3 percent,holding everything else constant?

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