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Derive the IS curve based on the given information about autonomous spending, investment spending, and interest rates.
Economics
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Answer
-500
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| Point | r | y |
|---|---|---|
| y-intercept | 0 | 8000 |
| x-intercept | 16 | 0 |
Step-by-step solution
3 stepsIdentify the given points on the investment demand curve.
At interest rate , investment spending .
At interest rate , investment spending .Calculate the change in investment and interest rate.
Calculate the slope of the investment demand curve.
Formula for slope:
Substitute values:The slope of the investment demand curve is .
To derive the equation of the investment line:
Check at : ✓
This linear investment function can be used to derive the IS curve via , or (where is the marginal propensity to save).
-500
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