Consider two different versions of the basic neoclassical model. In one, the marginal propensity to consume (MPC) is relatively large, in the other the MPC is relatively small. (a) Show how a higher or lower value of the MPC affects the slope of the IS curve. (b) Suppose that there is an increase in ft . Show graphically how this impacts equilibrium rt in the two cases considered in this problem one in which the MPC is relatively large, and one in which the MPC is relatively small.
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