S E35: Connecting Interest Rates & Output
Think Like An Economist
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How a Lower Real Interest Rate Leads to More Spending and More Output
Economists call this the i s curve, which plots real interest rates against output. It reflects influence of central bank setting the risk free rate and all those folks in suits in financial markets buying and selling bonds. If the central bank lowers interest rates, then the m p curve shifts,. The i s curve summarizes all the ways in which this is going to lead to more spending and more output.
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