Answer to Question #230085 in Microeconomics for rabail

Question

Effect of Zero Investment of Interest Elasticity Demand on IS Curve

Answer 1

The IS curve depicts the goods market equilibrium interest rate and output combinations. It's a downward-sloping curve that depicts how interest rates and investment spending are inversely related. The interest elasticity of investment demand and the slope of the saving curve determine the slope of the IS curve (MPS). The interest elasticity of money demand is an important feature. The LM curve will be vertical if the interest elasticity is zero, according to popular belief, and fiscal policy will have no effect on equilibrium output or employment.