The IS curve slopes down because as the interest rate rises
A) borrowing costs rise.
B) the net present value of business projects falls.
C) the domestic currency strengthens, dampening export demand.
D) all of the above.

Question

Quizplus · Accepted Answer

The IS curve slopes downward because all the given options (A, B, and C) correctly explain why an increase in the interest rate would lead to a decrease in aggregate demand, which is what the IS curve represents. Higher borrowing costs, lower net present value of business projects, and a stronger domestic currency reducing export demand all contribute to this effect.

The IS Curve Slopes Down Because as the Interest Rate