What is the IS relation? Explain why IS curve is downward sloping
What will be an ideal response?
The IS relation shows the combinations of the interest rate and the level of output that are consistent with equilibrium in the goods market. An increase in the interest rate leads to a decline in output. Consequently, the IS curve is downward sloping.
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If the natural unemployment rate is 4 percent and potential GDP is $30 billion, then according to Okun's Law, when the unemployment rate falls to 3 percent, real GDP
A) decreases to $29.4 billion. B) first decreases by 4 percent and then increases by 4 percent. C) increases to $60 billion. D) increases to $30.6 billion. E) remains constant at $30 billion.
Which of the following is upward-sloping?
a. both the long-run and the short-run Phillips curve b. neither the long-run nor the short-run Phillips curve c. the long-run Phillips curve, but not the short-run Phillips curve d. the short-run Phillips curve, but not the long-run Phillips curve