True or false? - The investment demand function shows the relationship between investment spending and real...

True or false?

- The investment demand function shows the relationship between investment spending and real interest rate

- The IS curve consists of every equilibrium spending at each real interest rate

- The IS curve represents the combination of GDP and interest rate for which injections and leakages are equal.

- If an economy is currently at a point to the left of the IS curve, this means that the aggregate spending is more than the actual output. Therefore, there will be a pressure to lower the actual output back towards equilibrium spending.

- The intersect of the IS and LM curves means that the economy is currently experiencing money market clearing and also spending equilibrium.

Solutions

Expert Solution

1. True
(Investment function shows inverse relationship between the given two variables.)

2. True
(IS curve shows the relationship between real interest rate and the GDP.)

3. True
(IS curve shows combinations for which injection = leakages.)

4. False
(Aggregate output will have to be increased.)

5. True
(Money market and goods market equilibrium is shown by the intersection of IS and LM curves.)

Rahul Sunny answered 1 year ago

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