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1. Suppose in an economy there is passed a new regulatory law that reduces the productivity...

1. Suppose in an economy there is passed a new regulatory law that reduces the productivity of newly produced machines. As a result of the change

A.there will be an initial shortage of savings and equilibrium investment will fall
B.there will be an initial surplus of savings and the equilibrium interest rate will rise
C.the equilibrium interest rate will rise because machines are less efficient
D.the equilibrium interest rate will fall and equilibrium savings will fall too


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Answer #1

Decrease in productivity will decrease the investment which will shift the IS curve downwards. This cayses interest rate to decrease and equilibrium savings will also fall. Answer is D.

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