When drawn on a graph with income along the horizontal axis and the interest rate along the vertical axis, the IS curve generally:
A) is vertical.
B) is horizontal.
C) slopes upward and to the right.
D) slopes downward and to the right.

Question

Quizplus · Accepted Answer

The IS curve shows the combinations of interest rates and income levels where the goods market is in equilibrium (where aggregate demand equals aggregate supply). As interest rates decrease, investment spending increases, causing aggregate demand to increase and vice versa. Therefore, the IS curve generally slopes downward and to the right.

When Drawn on a Graph with Income Along the Horizontal