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.
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Solution Summary
The solution shows how to calculate the equilibrium level of income with interest rates and resulting IS curve.
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Using the same simple model of the economy, now allow for the impact of interest rates on consumption.
The ...
Purchase this Solution
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