When drawn with the interest rate on the vertical axis and income on the horizontal axis, the IS curve will be steeper the:
A) larger the level of government spending.
B) smaller the level of government spending.
C) greater the sensitivity of investment spending to the interest rate.
D) smaller the sensitivity of investment spending to the interest rate.

Question

Quizplus · Accepted Answer

The IS curve will be steeper when there is a smaller sensitivity of investment spending to the interest rate. This is because a smaller sensitivity means that changes in the interest rate have a less significant impact on investment spending, leading to smaller shifts in the curve for a given change in interest rates.

When Drawn with the Interest Rate on the Vertical Axis