Consider the IS Curve $\tilde { Y } _ { t } = \frac { 1 } { 1 - \bar { x } } \times \left[ \bar { a } - \bar { b } \left( R _ { t } - \bar { r } \right) \right]$

question 32

Multiple Choice

Consider the IS curve $\tilde { Y } _ { t } = \frac { 1 } { 1 - \bar { x } } \times \left[ \bar { a } - \bar { b } \left( R _ { t } - \bar { r } \right) \right]$ . If there is no demand shock and $\bar { b } = 2$ And $\bar { x } = 0.5$ , a 1 percent increase in the real interest rate causes short-run output to:

• A) fall by 2 percent
• B) rise by 4 percent
• C) fall by 4 percent
• D) fall by 0.5 percent
• E) Not enough information is given.

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