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1. Suppose the central bank changes its interest rate rule to set a higher value of the saving real interest rate for a given level of output.
a. Show the effects of this change in the IS-MP diagram.
b. Describe whether this change increases, decreases, or has no effect on the following variables (or whether it is not possible to tell):
i. Output.
ii. The saving real interest rate.
iii. The borrowing real interest rate.
iv. The interest rate differential.
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