Consider the following model of the IS curve without an international sector:
Consumption:
,
;
Investment:
,
;
Government expenditure:
.
With this formulation,the IS curve is less steeply sloped than the "standard" IS curve.

Question

Consider the following model of the IS curve without an international sector:
Consumption:  
,  
;
Investment:  
,  
;
Government expenditure:  
.
With this formulation,the IS curve is less steeply sloped than the "standard" IS curve.

Quizplus · Accepted Answer

The less steep slope of the IS curve is due to the fact that an international sector is not included in the model. Without considering international factors, the domestic factors have a greater impact on the level of output and investment, leading to a less steep relationship between output and interest rates.

Consider the Following Model of the IS Curve Without an International