The economy is currently producing at potential output. The relationship between the real interest rate and short-run output is described by an IS curve with b = 0.5. The current real interest rate is 6% and the MPK is 3%. Now suppose that a negative aggregate demand shock causes short-run output to drop to -2.25%. To stimulate investment and bring the economy back to potential output, the central bank must set the real interest rates to percent.

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