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The IS Curve and a Steep Slope

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We can expect the IS curve to get steeper as:
1)-money demand becomes less sensitive to the interest rate
2)-the marginal propensity to save increases
3)-investment becomes more sensitive to changes in the interest rate
4)-the income tax rate decreases
5)-the expenditure multiplier increases

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Solution Summary

There are several factors that affect the slope of the IS curve. This solution discusses a what can cause a very steep slope in the IS curve.

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Given:

Y* = [C0 + c(TR0 - TX0) + I0 + G0 + I(r)]/(1-c(1-t))

where:
Y = income
CO = autonomous consumption
c = marginal propensity to consume out of current disposable income
TRO = disposable income
TXO = ...

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