If we write the consumption function as $C _ { t } / \bar { Y } _ { t } = \bar { a } _ { c } + \bar { x } \tilde { Y } _ { t }$ , if $\bar { x } < 1$
, the IS curve is given by:

Question

If we write the consumption function as $C _ { t } / \bar { Y } _ { t } = \bar { a } _ { c } + \bar { x } \tilde { Y } _ { t }$ , if $\bar { x } < 1$
, the IS curve is given by:
A) $\tilde { Y } _ { t } = \frac { 1 } { 1 - \bar { x } } \times \left[ \bar { a } - \bar { b } \left( R _ { t } - \bar { r } \right) \right]$
B) $\tilde { Y } _ { t } = ( 1 - \bar { x } ) \times \left[ \bar { a } - \bar { b } \left( R _ { t } - \bar { r } \right) \right]$
C) $\tilde { Y } _ { t } = \bar { a } - \bar { b } \left( R _ { t } - \bar { r } \right)$
D) $\tilde { Y } _ { z } = \bar { x } \times \left[ \bar { a } - \bar { b } \left( R _ { t } - \bar { r } \right) \right]$
E) $\tilde { Y } _ { t } = \frac { 1 } { \bar { x } } \times \left[ \bar { a } - \bar { b } \left( R _ { t } - \bar { r } \right) \right]$

Quizplus · Accepted Answer

The IS curve is derived from the equilibrium condition in the goods market, where output is determined by the consumption function and investment. Given the consumption function, the IS curve is typically expressed as output being a function of autonomous spending and the interest rate. The correct form here accounts for the multiplier effect, which is $\frac{1}{1-\bar{x}}$, reflecting the impact of changes in autonomous spending on output.

If We Write the Consumption Function As Ct/Yˉt=aˉc+xˉY~tC _ { t } / \bar { Y } _ { t } = \bar { a } _ { c } + \bar { x } \tilde { Y } _ { t }Ct​/Yˉt​=aˉc​+xˉY~t​

If We Write the Consumption Function As $C _ { t } / \bar { Y } _ { t } = \bar { a } _ { c } + \bar { x } \tilde { Y } _ { t }$