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1. What is $ curve and why is it downward sloping? What is the meaning of the slope of IS curve? 2. When short-run output is
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Answer #1

1)Is Equation is relationship between interest rate and national income basically it shows how national income change due to change in interest rate.

Because Increase in interest rate increase cost of investment whixh lead to decrease in Investment and lower national income,so there is a negitive relationship between interest rate and national income,so that is why IS curve ia downward sloping.

The slope of IS curve shows how much national income Decreases due to 1 unit change in interest rate.in general ,it shows how strong is effect of interest rate on national income.

B)The real interest rate will at highest possible value that lead to decrease national income to zero.

C)IS Equation;,

Y=C+I+G+NX

And solving Y in terms of interest rate will give IS equation.

Autonomous spending like autonomous consumption, autonomous Investment, goverment spending,tax and exports shift IS curve.

D) Consumption=a+mpc*yd

Using this Consumption function and by equilibrium Y derived from IS curve ,we find consumpt.

Investment=Io-br+dy

Using this Investment function,and by equilibrium Y and r derived from IS curve ,we find Investment.

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