The negative relation between investment spending and the interest rate is what gives the ________ curve its ________ slope.
A)IS;upward
B)IS;downward
C)LM;downward
D)LM;upward

Question

Quizplus · Accepted Answer

The IS curve represents the equilibrium between investment and saving in the goods market, and investment spending is negatively related to the interest rate. Therefore, as the interest rate increases, investment spending decreases, and the IS curve slopes downward. The LM curve represents the equilibrium between the demand for money and the supply of money in the financial market, and its slope is upward due to the positive relation between the interest rate and income as people want to hold more money as their income increases.

The Negative Relation Between Investment Spending and the Interest Rate