Which of the following statements is correct ?Group of answer choicesThe IS relation refers to combinations of real income and the rate of interest consistent with equilibrium in the money market.Points on the IS curve shows how aggregate expenditure varies with the rate of interest when the goods market is not in equilibrium.The slope of the IS curve reflects the sensitivity of consumption and investment to changes in the rate of interest as well as the size of the multiplier.An increase in the marginal propensity to consume would result in a parallel rightward shift of the IS curve.

Consider the IS relation for an economy with both government and external sectors. Which of the following statements is correct?Group of answer choicesA rise in the marginal tax rate combined with a fall in the responsiveness of investment to the rate of interest might reduce, or it might increase or it might leave unchanged the slope of IS curve.An increase in the marginal propensity to import should lead to a parallel shift to the left in the IS curve.A rise in the marginal propensity to consume together with a rise in exogenous taxation should shift the IS curve leftwards as well as making it flatter.An increase in the income-expenditure multiplier combined with a reduction in the responsiveness of investment to the rate of interest would definitely make the IS curve flatter.

The IS curve is the locus of (Y, r) points where the:government budget is in deficit.goods and the money market are in equilibrium.money market is in equilibrium.goods market is in equilibrium.

If investment spending is very sensitive to the interest rate, then:Group of answer choicesthe IS curve should be relatively flatthe IS curve should be relatively steepthe LM curve should be relatively flatthe LM curve should be relatively steepneither the IS nor the LM curve will be affected

A point below the IS curve corresponds toGroup of answer choicesexcess demand in the goods marketexcess supply in the goods marketexcess supply in the financial marketexcess demand in the financial market

In the IS-MP model we have real interest rate on the vertical axis and outputon the horizontal axis. Explain the IS curve, and its slope by assuming aclosed economy where 𝐶 = 𝐶0 + 𝑐(𝑌 − 𝑇), 𝐼 = 𝐼0 − 𝑏𝑟 and 𝐺 = 𝐺0. 𝐼0 and 𝐺0and 𝐶0 are all positive, 𝑏 > 0 and 0 < 𝑐 < 1. 𝑇 is a lump sum tax.