IS Curve Equation Application Two


Suppose that initially . Then there is a demand shock to consumption where and the Then short-run output will rise by 1%
    See page 246-247 (of Jones Macro Econ)


Starting a bit into the IS curve calculation, we know that





Plugging in our given numbers (and I suppose assuming that consumption increasing by 5% is to mean that   increases by 5%)







The short-run economy will rise by 1%.

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