1. Why does a change in the real interest rate shift the aggregate expenditure line in the 45°-line diagram, but not shift the IS curve?
2. In each of the following situations, briefly explain whether the IS curve will shift and, if it does shift, in which direction it will shift:
a. Consumers become more optimistic about their future incomes.
b. The federal government cuts the corporate profit tax.
c. The real interest rate rises.
d. Firms become pessimistic about the future profitability of spending on new information technology.