Answer to Question #265317 in Macroeconomics for Tee

Question

State whether the slope of the LM and IS curve is negative or positive ,support your answer

Answer 1

Slope of the LM curve is positive. This is because money demand increases with increase in income and also bond demand decreases for a given interest rate.

Slope of the IS curve is negative because investment spending is decreased by a higher level of interest rate. Hence, aggregate demand is reduced and also the equilibrium level of income.