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In: Economics

Suppose the investment is very sensitive to the interest rate.That is, the function I(r), used to...

Suppose the investment is very sensitive to the interest rate.That is, the function I(r), used to derive the IS curve, is very steep.

  1. Graphically derive the IS curve in the closed economy. What can you say about the steepness IS curve?

  2. In this context, which policy do you think is likely to be more effective? Fiscal policy or monetary policy? (Hint: make use of your answer to question 1)

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Expert Solution

Rahul Sunny answered 2 years ago
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