The slope of the IS curve, what are the factors that affect the slope of the IS curve and how it is

IS curve. and the factors that affect the slope of the IS curve.

1) The slope of the IS curve: dr dy=-(1-b+bt) h=-[1-(1-t)b] h<0

2) Factors influencing the slope of the IS curve: b and h

The greater the value of b, the absolute value of the slope of the IS curve.

The smaller (i.e., the flatter the IS curve), the greater the multiplier of national income, and the more responsive Y is to R; The smaller the value of b, the greater the absolute value of the slope of the IS curve (i.e., the steeper the IS curve), the smaller the multiplier of the national income, and the less responsive Y is to R.

The larger the h value, the smaller the absolute value of the slope of the IS curve (i.e., the flatter the IS curve), the more sensitive i is to the change of r, and the more sensitive y is to r. The smaller the h value, the greater the absolute value of the slope of the IS curve (i.e., the steeper the IS curve), the less sensitive I is to the change in R, and the less sensitive Y is to R.

The slope of the is curve depends on both d and d.

If the value of D is larger, i.e., the investment is more sensitive to changes in interest rates, then the slope of the ISS curve is smaller, i.e., the 5 curve is more gentle. This is because, when the investment is more sensitive to interest rates, a small change in the interest will cause a large change in the investment, which in turn will lead to a large change in the income. This is reflected in the IS curve.

The above is: a small change in interest rate requires a large change in the income to match it in order to make the product market balanced.

Indicates a marginal propensity to consume.

If the value is larger, the slope of the is curve is smaller. This is because a larger value means a larger spending multiplier, so that when a change in interest rates causes a change in investment, income will change more sharply, and the IS curve will be flatter. When the marginal propensity to consume is large, the marginal propensity to save is smaller, that is, the savings curve is flatter, and thus the IS curve is also flatter.

The slope of the IS curve is affected by , d, and the tax rate t.

1.The larger it is, the greater the multiplier effect and the flatter the IS curve. Otherwise, the steeper.

The larger it is, the more sensitive the investment is to interest rates, and the flatter the IS curve; Otherwise, the steeper.

3.The analysis of the tax multiplier t is similar to , but the impact of the two on national income is in opposite directions: the smaller the t, the greater the multiplier effect, the flatter the IS curve, and when the interest rate changes cause investment changes, it will lead to a larger change in national income; Conversely, the larger the t, the smaller the multiplier effect and the steeper the IS curve.

4.In general, the marginal propensity to consume and the marginal tax rate t are relatively stable, while the sensitivity of investment to interest rates D is the main reason for the IS curve. Change in the slope of the IS curve: taxes.

Extended Materials. IS curve.

The IS curve is the trajectory of all the points at which the combination of income and interest rates meet the equilibrium in the product market. The IS curve is sloping downwards because a rise in interest rates causes a decrease in investment spending, which in turn reduces total spending, ultimately leading to a decline in the equilibrium income level. The slope of the IS curve mainly depends on the sensitivity of the investment relative to the interest rate and the size of the multiplier, the more elastic the investment is to the interest rate, the flatter the IS curve; The larger the multiplier, the flatter the IS curve.

The movement of the IS curve is caused by the change of spontaneous expenditure, and the increase of spontaneous expenditure causes the IS curve to shift to the right; A decline in spontaneous spending causes the IS curve to shift to the left. All the points in the upper right of the IS curve indicate that there is excess supply in the product market, and the points in the lower left of the IS curve indicate that there is excess demand in the product market, and only the points on the IS curve can meet the requirement that the total supply and total demand in the product market are equal.

Economic implications. 1) Describe the relationship between total income and interest rates when the product market reaches macro equilibrium, i.e., i=s.

2) There is an inverse relationship between total income and interest rates, that is, when interest rates increase, the level of total income tends to decrease, and when interest rates decrease, the level of total income tends to increase.

3) Any point on the IS curve indicates i=s, and any point that deviates from the IS curve indicates that equilibrium is not achieved.

4) If a certain point is on the right side of the IS curve, it means IS, that is, the current interest rate level is too low, resulting in a greater scale of investment than savings, which means that the current output cannot meet the demand, and the supply of the product market is less than the demand.

The IS-LM model is at the heart of Keynesian macroeconomics. When analysing the effects of fiscal policy, for example, when analyzing the effects of an expansionary fiscal policy that increases spending, if an increase in spending increases interest rates a lot (which is the case when the LM curve is steeper), or if a certain increase in interest rates falls a lot in private sector investment (which is the case when the IS curve is flatter), then The "crowding out" effect of spending is larger, so that expansionary fiscal policy has less effect, and vice versa. It can be seen that by analyzing the slopes of the IS and LM curves and their determinants, we can intuitively understand the determinants of the effect of fiscal policy

Factors that make the slope of the IS curve smaller (e.g., investment more sensitive to interest rates, greater marginal propensity to consume and therefore larger expenditure multiplier, and smaller marginal tax rate which also make the spending multiplier) and factors that make the slope of the LM curve larger (e.g., money demand less sensitive to interest rates and money demand more sensitive to income) are factors that make fiscal policy less effective. When analysing the effects of monetary policy, for example, an expansionary monetary policy that increases the money supply, the effect of monetary policy is evident if an increase in the money supply causes interest rates to fall a lot (as is the case when the LM curve is steep), or if a certain increase in interest rates increases private sector investment by a large amount (as is the case when the IS curve is relatively flat), then the effect of monetary policy is obvious, and vice versa. It can be seen that by analyzing the slopes of IS and LM curves and their determinants, we can intuitively understand the determinants of monetary policy effect. The factors that make the slope of the IS curve smaller and the factors that make the slope of the LM curve larger are the factors that make monetary policy more effective.

Analyzing this question is actually asking what are the factors that affect investment, because any point of savings online is equal to investment, so the slope of the two is equal. There are many factors that affect investment, the most important of which is the interest rate. Many textbooks are analyzed in terms of interest rates.

In addition, there are expectations for the economy, price levels, corporate development strategies, etc.

The trajectory of the point at which the product market reaches equilibrium, various combinations of income and interest rates. In a two-sector economy, the mathematical expression of the IS curve is i(r)=s(y) and its slope is negative, indicating that the IS curve is generally a curve that slopes to the lower right. Generally speaking, in the product market, the combination of income and interest rates on the right side of the IS curve is an unbalanced mix of investments that are less than savings; The combination of income and interest rate on the left side of the IS curve is a non-equilibrium portfolio in which investment is greater than savings, and only the combination of income and interest rate on the IS curve is an equilibrium portfolio in which investment equals savings.

Under the condition that the expected return on investment remains unchanged, a decrease in interest rates means a decrease in investment costs and an increase in profits, so companies will increase investment. Increasing investment demand leads to increased output and equilibrium income. In this way, the IS curve will exhibit a downward slope to the right.