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# Interest Rate

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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?

#### 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.

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