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.

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

Pls help with below homework.

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.

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