In the IS curve stands for investment and S stands for savings. IS curve stands for equilibrium of market and goods for varied interest rates. The real interest rate in which the goods enter the market for any level of output is the IS curve, and if the output level is made constant, the IS curve in the graph is forced to make a shift. Manuals as IS curve homework answers can be of real help to students!
If economic changes of a country force the national saving to reduce when compared with the desired investment, the following outcome would be that interest rates would shoot up and that would make the curve go up.
If the economy takes changes to national saving with desired investment and that would make the interest rates to come down as the savings are on a high and that would bring down the curve in IS curve.
The common factors that would shift the IS curve
The future output or savings can determine IS curve. If there is an expectation of future income, then the consumption can increase as there is a cushion of future income coming. This can cause a condition in which the desired saving gets reduced, and that can go for an increase in interest rates, and that would make sure that IS curve go up. Students of economics trying IS curve homework answers are supposed to know these basics.
Assume that there is a decrease in the expectation of future income and household would start saving their hard earned money more and that can bring the interest down as more savings come in. This would bring the curve down.
An increase in wealth and decrease in wealth can bring a change in IS curve. Wealth always determines the consumption factor and when wealth increases spending also increase, and that lifts interest rate. The reason is that savings decrease and IS curve goes up and when wealth decrease spending decrease is leading to savings and reduction in interest rates. The IS curve comes down.
When government purchases increase the demand for goods increase and the saving falls, and that would lead to a change in IS curve. The IS curve would go up, and they would go down when government purchase falls.
The tax has an impact on the IS curve. When taxes increase consumption starts to fall, and that causes an increase in savings. This would make the IS curve to go down.
The effective tax rate on capital is an important factor in determining the IS curve. The interest rate would go up when the tax rate on capital goes up. The IS curve would go up in that situation.
The future marginal product of capital is another factor that determines the IS curve. An increase would bring curve up and would bringÂ IS curve down.
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