Explain what happens to short-run output

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Suppose the parameters of the IS curve are a = 0, b= 3/4, r = 3% and the real interest rate is initially R = 3%. Explain what happens to short-run output in each of the following scenarios (consider each separately). Be sure to provide a numerical result and justify your answer with the IS curve.

(a) The real interest rate falls from 3% to 1%.

(b) The real interest rate rises from 3% to 4%.

(d) aim decreases by 4 percentage points.

Reference no: EM131084980

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