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  • Module - 3 - Derivation of The Is Curve

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    The document derives the IS curve by starting with an equation for savings (s) as a function of income (y). It then substitutes this savings equation into the income-expenditure model equation to solve for income (y) in terms of the interest rate (i). This yields a downward sloping relationship between income and the interest rate, which defines the IS curve.

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    Module_3_Derivation of the is Curve

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    The document derives the IS curve by starting with an equation for savings (s) as a function of income (y). It then substitutes this savings equation into the income-expenditure model equation to solve for income (y) in terms of the interest rate (i). This yields a downward sloping relationship between income and the interest rate, which defines the IS curve.

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    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
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    5 views1 page

    Module - 3 - Derivation of The Is Curve

    Uploaded by

    0703055
    The document derives the IS curve by starting with an equation for savings (s) as a function of income (y). It then substitutes this savings equation into the income-expenditure model equation to solve for income (y) in terms of the interest rate (i). This yields a downward sloping relationship between income and the interest rate, which defines the IS curve.

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    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
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    of 1

    Derivation of the IS Curve

    s = -20+0.5y
    s s

    to s=i
    find

    y,

    40= 50
    50
    -20 40 40
    +

    0.5y
    y i
    40 50
    y=1 120 140

    20

    r r

    4% 4%
    3%
    3%

    IS
    y i
    120 140 40 50

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