Suppose We Assume $\bar { a } = 0 , \bar { b } = 1 , R _ { t } = \bar { r } = 5 \%$

question 39

Multiple Choice

Suppose we assume $\bar { a } = 0 , \bar { b } = 1 , R _ { t } = \bar { r } = 5 \%$ , and the real interest rate rises to $R _ { t } ^ { \prime } = 6 \%$ ) In this scenario of the IS curve the economy would, in the short run:

• A) remain at its long-run equilibrium
• B) move from 1 percent below its potential to its long-run equilibrium
• C) move from its long-run equilibrium to 1 percent above its potential
• D) move from its long-run equilibrium to 1 percent below its potential
• E) have increased output

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Definitions:

Logic of Science

The principles and criteria of validity that guide scientific research and the development of theoretical frameworks.

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Reasonable outcomes derived from logical reasoning or evidence.

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Refers to the daily activities, routines, and interactions that make up an individual's normal existence or way of living.

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The basic level of practical knowledge and judgment that is shared by a large number of people; the ability to make sound decisions on everyday matters.