Question: sTEP BY STEP EXPLANATION PLEASE, NOT JUST ANSWER Q5. Getting to equilibrium in ISLM. (a) Consider point A in the gure below. Is this an

sTEP BY STEP EXPLANATION PLEASE, NOT JUST ANSWER

Q5. Getting to equilibrium in ISLM. (a) Consider point A in the gure below. Is this an equilibrium point? Why/why not? What would you expect to happen if the economy was initially at point A? Point A is not on the IS curve. At this low interest rate aggregate demand exceeds production so production will increase. (b) Do the same analysis for point B. Point B is not on the LM curve. At this high interest rate, money holdings are higher than people desire so people will lend money and the interest rate will fall. 1'1

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