Suppose that we start in a situation where the expected and actual inflation is equal to the Central Banks inflation goal and that the production is on the natural level.
a) Suppose now that the consumers are becoming more pessimistic about the future income. How will this affect the IS-curve?
Reply briefly with some few sentences plus relevant figure.
b) Suppose that as a result of the pessimistic outlook, consumers also expect that in the future inflation will be lower than the Central Banks inflation goal. How will this affect the IS-curve?
Reply briefly with a few sentences.
c) What does the Central Bank do if their aim is to stabilize the real economy?
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