For the same exercise as a. Consider the basic Neoclassical model. Graphically analyze the effects of a decrease in 1tA + . Clearly describe how each endogenous variable changes.
a) The real interest rate decreases, investment increases, leading to a higher level of output and income.
b) The real interest rate decreases, investment decreases, leading to a lower level of output and income.
c) The real interest rate increases, investment increases, leading to a higher level of output and income.
d) The real interest rate increases, investment decreases, leading to a lower level of output and income.