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

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

    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.