Along an IS curve as income levels __________, saving is smaller, so the interest rate must be __________ to reduce the level of investment so it will be equal to saving.

Question

Quizplus · Accepted Answer

Along an IS curve, as income levels decrease, saving is larger, so the interest rate must be higher to reduce the level of investment so it will be equal to saving. Therefore, as income levels increase, saving is smaller, and the interest rate must be higher to reduce investment so it will be equal to saving. Therefore, the answer is C, decrease; higher.

Along an IS Curve as Income Levels __________, Saving Is