# Interest Rate

In a closed (no foreign sector), mixed economy with stable prices, if we assume that consumption (C) and investment (I) do not depend on the interest rate (r), can we conclude that:

a. the IS curve is vertical?

b. monetary policy has no effect on real income and output?

https://brainmass.com/business/interest-rates/interest-rate-is-curves-monetary-policy-252729

#### Solution Preview

Hello Student,

I have attached the completed solution.

Solution:

Consumption and investment depend on potential of the expectations. To get into account the achieve of expectations.

Previous, the IS relation was:

Describe aggregate private spend or merely, private spend, A, as:

Rework the IS relative as:

With incorporate the function of prospect, then:

Prime denote expectations value, and es estimated values

The positive and negative symbols clarify how:

A. the IS curve is vertical?

The original IS Curve:

Given expectations, a decline in the real interest rate leads to ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer what is the IS curve is vertical.