The “Great Moderation” from 1985–2007 could have been due to either smaller demand shocks when compared to the period prior to 1985 or a better response by monetary policymakers between 1985 and 2007 to the same demand shocks that occurred prior to 1985. Evidence to determine which of these arguments is correct may be found by examining the behavior of the interest rate during the “Great Moderation.” If the “Great Moderation” was due to smaller demand shocks, then less variation in real GDP would have been accompanied by less variation in the interest rate as well. On the other hand, if the “Great Moderation” was due to better response by monetary policymakers to the same demand shocks that occurred previously, then the decline in the variation of real GDP would have been accompanied by an increase in the variation of the interest rate. Evaluate these arguments using the IS-LM model.