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    IS Curve - the influence of interest rates

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    Using the same simple model of the economy, now allow for the impact of interest rates on consumption.

    The consumption function is:
    Y=120+0.7Y-10r
    where r is the level of interest rates.
    Calculate the equilibrium level of income when interest rates are 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10% Draw the resulting IS curve.

    © BrainMass Inc. brainmass.com October 10, 2019, 2:10 am ad1c9bdddf
    https://brainmass.com/economics/general-equilibrium/curve-influence-interest-rates-366090

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    Using the same simple model of the economy, now allow for the impact of interest rates on consumption. 

    The ...

    Solution Summary

    The solution shows how to calculate the equilibrium level of income with interest rates and resulting IS curve.

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