The foundation of the IS curve is the national income identity given by the equation
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Question

The foundation of the IS curve is the national income identity given by the equation  
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Quizplus · Accepted Answer

The foundation of the IS curve is not the national income identity (Y=C+I+G), but rather the equilibrium condition in the goods market, which states that output (Y) equals the demand for goods (C+I+G). This can be expressed as Y=C(Y-T)+I(r)+G in the simple case of a closed economy, where I is investment, G is government spending, T is taxes and r is the interest rate. The IS curve plots combinations of Y and r that satisfy this equilibrium condition.

The Foundation of the IS Curve Is the National Income