The economy is currently producing at potential output. The relationship between the real interest rate short-run output is described by an IS curve with b = and the current real interest rate is 6%. The MPK is 3%. Suppose a negative aggregate demand shock causes short-run output to drop to -1.5%. To stimulate investment and bring the economy back to potential output, the central bank should set the real interest rates to percent.

The economy is currently producing at potential output. The relationship between the real interest rate short-run output is described by an IS curve with b = and the current real interest rate is 6%. The MPK is 3%. Suppose a negative aggregate demand shock causes short-run output to drop to -1.5%. To stimulate investment and bring the economy back to potential output, the central bank should set the real interest rates to percent.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter16: Monetary Policy

Section16.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 4SQP

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