Suppose that business pessimism reduces investment such that aggregate demand becomes less than full employment income at all non-negative rates of interest. Use IS-LM analysis to answer the following:
(a) Are there positive equilibrium levels of y, r and P in the neoclassical model?
(b) Are there positive equilibrium levels of y, r and P in the Keynesian ?xed-price model? In the Keynesian nominal wage model (without ?xed prices)?
What processes will take the economy to these levels?