Everything else held constant, a depreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________.Single choice
A
a. right; decrease
B
b. right; increase
C
c. left; decrease
D
d. left; increase
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Using the IS curve 𝑌 ~ 𝑡 = 𝑎 ¯ − 𝑏 ¯ ( 𝑅 𝑡 − 𝑟 ¯ ) , in the long run, 𝑎 ¯ [ Select ] equals 0 equals 1 and 𝑅 𝑡 [ Select ] > < = 𝑟 ¯ , so that [ Select ] the economy's actual output equals potential output. the economy is in a boom the economy is in a recession .
Consider a closed economy with the following IS curve: 𝐼 𝑆 : 𝑌 ~ 𝑡 = 𝑎 ¯ − 𝑏 ¯ ( 𝑅 𝑡 − 𝑟 ¯ ) Suppose we assume 𝑎 ¯ = − 0.01 , 𝑏 ¯ = 3 , 𝑅 𝑡 = 𝑟 ¯ = 0.03 . 𝑌 ~ 𝑡 is short-run output when the real interest rate equals 𝑅 𝑡 and 𝑌 ~ 𝑡 ′ is short-run output when the real interest rate equals 𝑅 𝑡 ′ . If the real interest rate falls from 𝑅 𝑡 to 𝑅 𝑡 ′ = 0.02 , then the change from 𝑌 ~ 𝑡 to 𝑌 ~ 𝑡 ′ is ______ percentage points. Enter a positive number for a rise and a negative number for a drop.
Consider the following model of the IS curve without an international sector: Consumption: 𝐶 𝑡 𝑌 ¯ 𝑡 = 𝑎 ¯ 𝑐 − 𝑏 ¯ 𝑐 ( 𝑅 𝑡 − 𝑟 ¯ ) ; Investment: 𝐼 𝑡 𝑌 ¯ 𝑡 = 𝑎 ¯ 𝑖 − 𝑏 ¯ 𝑖 ( 𝑅 𝑡 − 𝑟 ¯ ) ; and Government expenditure: 𝐺 𝑡 = 𝑎 ¯ 𝑔 𝑌 ¯ 𝑡 . Note that 𝑏 ¯ 𝑐 can be a positive or negative real number. With this formulation, the IS curve is:
Using the IS curve 𝑌 ~ 𝑡 = 𝑎 ¯ − 𝑏 ¯ ( 𝑅 𝑡 − 𝑟 ¯ ) , in the long run, 𝑎 ¯ [ Select ] equals 0 equals 1 and 𝑅 𝑡 [ Select ] > < = 𝑟 ¯ , so that [ Select ] the economy's actual output equals potential output. the economy is in a boom the economy is in a recession .
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