Suppose that, for a given economy, the IS curve is such that it includes the consumption multiplier ( C₁ =acY₁ + x(Yt-Y)). Investment, government expenses, exports and imports behave as in the standard IS curve. If consumption's elasticity to short-run output is equal to 1/2 (meaning that x = 0.5), and there is aggregate demand shock that increases exports der by 5%:
O Short-run output decreases by 5%.
O There is not enough data to answer.
O Short-run output decreases by 20%.
O Short-run output increases by 5%.
O Short-run output increases by 10%.
O Short-run output increases by 5%
