Problem
Suppose the parameters of the IS curve are a_bar = 0, b_bar = 1/2, r_bar = 2%, and? R = 3%.
1. Calculate the initial short-run output.
2. Calculate the short-run output when real interest rate rises to 5%.
3. Calculate the short-run output when real interest rate goes to 0.
4. What's the value of real interest rate when the economy is outputting at its long-run level.