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Derive the is curve for a generic specification

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Reference no: EM132813447

This exercise will ask you to work through the derivation of the IS curve under various different scenarios.

(a) Graphically derive the IS curve for a generic specification of the consumption function and the investment demand function.

(b) Suppose that investment demand is relatively more sensitive to the real interest rate than in (a). Relative to (a), how will this impact the shape of the IS curve?

(c) Suppose that the MPC is larger than in (a). How will this affect the shape of the IS curve?

Reference no: EM132813447

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