Consider an Is -LM model where C=500 + .8Y I=2000-5r 1.Derive the equation of the IS curve? 2. Indicate and specify the value of the slope Also explain the meaning of the slope I can solve for the equation of the IS curve r= 500 -(1/25)Y please explain the 2nd part considering the effect of an increase in Y by 1 unit on the interest rates and on equilibrium in goods market.
the equation you got is right...NOw, slope is the coefficient of Y ie -0.04..NOw, an increase in Y by 1 unit will shift the IS curve to the right,hence interest rates will increase..and a higher equilibrium will be achieved...
