Is the economy in its long-term equilibrium

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Reference no: EM13891973

Suppose the parameters of the IS curve are a ¯i = 0, b ¯ = 0.5, r ¯ = 3% and the real interest rate is initially R = 3%

(a) Is the economy in its long-term equilibrium? Explain.

(b) Suppose the real interest rate falls to 2 per- cent; what happens to the short-run equilib- rium, holding everything else constant?

(d) What occurs if the marginal product of cap- ital rises to 5%? What would cause this to happen?

Reference no: EM13891973

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