"Consider the IS-MP model. Initially, there are no AD shocks and the Fed sets the (real) interest rate at R=4 percent. Graph the initial equilibrium and label it point A. Suppose now that consumers become pessimistic about the state of the economy and anticipate an imminent increase in unemployment rates. The Fed keeps its monetary policy unchanged. Shift the necessary curves in the IS-MP diagram and label the new equilibrium as point B. How will SRO be affected?" None of the other options "MP will shift down. Investment, actual GDP and SRO will all increase." "The IS will shift to the right. As a result, SRO will fall." "The IS will shift to the left. As a result, actual GDP will fall but SRO will remain unchanged."

"Consider the IS-MP model. Initially, there are no AD shocks and the Fed sets the (real) interest rate at R=4 percent. Graph the initial equilibrium and label it point A. Suppose now that consumers become pessimistic about the state of the economy and anticipate an imminent increase in unemployment rates. The Fed keeps its monetary policy unchanged. Shift the necessary curves in the IS-MP diagram and label the new equilibrium as point B. How will SRO be affected?" None of the other options "MP will shift down. Investment, actual GDP and SRO will all increase." "The IS will shift to the right. As a result, SRO will fall." "The IS will shift to the left. As a result, actual GDP will fall but SRO will remain unchanged."

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

"Consider the IS-MP model. Initially, there are no AD shocks and the Fed sets the (real) interest rate at R=4 percent. Graph the initial equilibrium and label it point A. Suppose
now that consumers become pessimistic about the state of the economy and anticipate an imminent increase in unemployment rates. The Fed keeps its monetary policy
unchanged. Shift the necessary curves in the IS-MP diagram and label the new equilibrium as point B. How will SRO be affected?"
None of the other options
"MP will shift down. Investment, actual GDP and SRO will all increase."
"The IS will shift to the right. As a result, SRO will fall."
"The IS will shift to the left. As a result, actual GDP will fall but SRO will remain unchanged."

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