Question: The equilibrium output is lower at point B compared to point A due to the higher interest rate at point B (5%) versus point A

The equilibrium output is lower at point B compared to point A due to the higher interest rate at point B (5%) versus point A (2%). Higher interest rates discourage investment because borrowing costs are more expensive, leading to decreased spending in the economy. As a result, the reduced investment at point B diminishes aggregate demand, lowering the equilibrium output relative to point A

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