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IS-LM Curve Described and Graphed

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Please describe and explain graphically

Within the IS-LM curve model, analyze the effect of an autonomous increase in saving that is matched by a drop in consumption, explain which curve would shift? Explain how would aggregate income level and interest rate level be affected.

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Solution Summary

The solution is related to the IS-LM curve. The solution not only explains the effect of autonomous increase in savings that is matched by a drop in consumption but also draws a graph for it (in the attachment). The solution also explains how the aggregate income levels and interest levels would be affected. The solution does a great job of explaining the concepts. Overall, an excellent response to the question.

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Increase in saving will reduce the demand for money. As the money supply is given, this will bring down the interest rate, and shift the LM curve to the right. But the decrease in interest ...

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