The main reason for the IS curve having a downward slope is
A)higher output raises saving,which leads to a lower market-clearing interest rate.
B)higher output raises saving,which leads to a higher market-clearing interest rate.
C)higher output decreases saving,which leads to a lower market-clearing interest rate.
D)higher output decreases saving,which leads to a higher market-clearing interest rate.

Question

Quizplus · Accepted Answer

The main reason for the IS curve having a downward slope is that higher output raises saving, which leads to a lower market-clearing interest rate. As output increases, people tend to save more, which makes less money available for investment. This reduces the demand for money, causing the interest rate to fall. As the interest rate falls, it stimulates investment spending and further increases output. Thus, the IS curve is downward sloping.

The Main Reason for the IS Curve Having a Downward