The slope of the IS curve is ________ and the slope of the Fed rule is ________.
A) positive; positive
B) positive; negative
C) negative; positive
D) negative; negative

Question

Quizplus · Accepted Answer

The IS curve, which represents the relationship between interest rates and the level of income that brings the goods market into equilibrium, has a negative slope because higher interest rates reduce investment and thus income. The Federal Reserve's rule, often represented by the Taylor rule, typically has a positive slope because it prescribes higher interest rates when inflation is above target or when the economy is above potential output.

The Slope of the IS Curve Is ________ and the Slope