Question: Analyzing macroeconomic events with the IS curve (I): Consider the following changes in the macroeconomy. Show how to think about them using the IS curve, and explain how and why GDP is affected in the short run.
(a) The Federal Reserve undertakes policy actions that have the effect of lowering the real interest rate below the marginal product of capital. (We will learn how this can occur in Chapter 12.)
(b) Consumers become pessimistic about the state of the economy and future productivity growth.
(c) Improvements in information technology increase productivity and therefore increase the marginal product of capital.