The IS curve slopes downward because higher? ______________ lead to lower?______

Question

The IS curve slopes downward because higher? ______________ lead to lower?___________ and? ___________.

A.interest? rates; investment? spending; net exports

B.government? spending; money? demand; net exports

C.government? spending; consumption; investment spending

D.interest? rates; money? demand; investment spending

Refer to the figure on your right.

?1.) Use the line drawing tool to draw and label a possible IS curve.

Carefully follow the instructions? above, and only draw the required object.

Explanation / Answer

There is neagtive relationship between the interest rate and investment as well as the money demand. At the higher interest rate the cost of borrowin money is very high so this will reduce the investment. On the opposite side, if the rate of interest is low the cost of borrowing money is less so the people more borrow more and invest.

The interest rate is the opportunity cost for borrowing money so at higher you would wanted to deposit the cash in bank so the money demand is low. The same is true for the opposite.

ANS: D) Interest rate;money demand;investment spending.

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