An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment ______, and this shifts the expenditure function ______, thereby decreasing income.
A) increases; downward
B) increases; upward
C) decreases; upward
D) decreases; downward

Question

Quizplus · Accepted Answer

As the interest rate increases, the quantity of investment decreases, and this shifts the expenditure function downward, thereby decreasing income. This results in a negative slope for the IS curve.

An Explanation for the Slope of the IS Curve Is