<p>Investment demand is part of the IS curve since the goods market is given by:</p>
<p><span class="math-container">$$Y =C(Y-T) + I(Y,i) +G$$</span></p>
<p>where <span class="math-container">$I(Y,i)$</span> would be called investment demand (which will be some function of output and interest rate e.g.  <span class="math-container">$I(Y,i)= d_1Y-d_2 i$</span>. A sensitivity of investment demand to interest rate would usually be interpreted loosely as simply talking about the magnitude of effect that <span class="math-container">$i$</span> has on <span class="math-container">$I$</span> in this case <span class="math-container">$d_2$</span> (or <span class="math-container">$\partial I/\partial i$</span>) - for example Blanchard et. al. Macroeconomics: a European Perspective pp 93 uses the phrase in reference to <span class="math-container">$d_2$</span>. However, I think I also recalled the word to be used more narrowly in some work referring to more precisely elasticity of investment demand with respect to <span class="math-container">$i$</span> (i.e. <span class="math-container">$\frac{\partial I}{\partial i }\left(\frac{i}{I}\right)$</span>), but I cant find a reference to the second example at a spot.</p>
<p>In any case the point is that the meaning of sensitivity of investment demand is to figure out what effect change in  interest rate (<span class="math-container">$i$</span>) has on the investment. For example, in an extreme case where <span class="math-container">$d_2$</span> would be zero investment demand would be completely insensitive to changes in interest rate.</p>

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2020-11-18T22:47:58.743Z
Wow very explanatory answer! Many thanks. That is, this makes IS curve steeper.
studentp
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2020-11-19T01:07:03.223Z
[FYI](https://economics.meta.stackexchange.com/q/1879/42)
Herr K.
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2020-11-19T01:32:25.990Z
@HerrK. Thanks for bringing that to my attention I will investigate this matter and if there is any rule-violation take an action
1muflon1
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2020-11-19T08:23:07.180Z
I forgot my email address and it’s passcode, Thus I have two accounts. But I cannot use it about for 1 year. I have only account that I use is this.
studentp
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2020-11-19T10:11:40.700Z
@B11b its ok I looked into it and the other accounts do not show any activity now so it does not seem to break rules
1muflon1
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2020-11-18T21:49:19.267Z
2020-11-18T21:49:19.267Z
1muflon1
<p>For keynesian model,</p>
<p>Describe how, if at all, each of the following development affect the IS and/or the LM curve, and the equilibrium (r; Y ):</p>
<p>Investment demand becomes less sensitive to the interest rate.</p>
<p>I am diffucult to interpret the meaning of this statement that Investment demand becomes less sensitive to the interest rate. Please share your idea with me. Thank you.</p>

CC BY-SA 4.0
2020-11-18T13:50:48.670Z
I'd imagine this may refer to a so-called liquidity trap. So it is worthwhile checking your notes on the liquidity trap. Yet, I am open to being mistaken on the matter.
EB3112
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2020-11-18T15:16:52.513Z
Hint: what decides the slope of the IS curve?
Dayne
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2020-11-18T16:29:39.757Z
I am sorry but this post does not satisfy our criteria for homework questions. Even if you have difficulty interpreting it at least make an attempt - even if the attempt is wrong nobody will think less of you for that, everyone can see that you are still learning. Here is a link to our homework question policy: https://economics.meta.stackexchange.com/questions/1465/economics-se-policy-on-homework-questions. If you edit the question to be in compliance with the policy your question will be reopened.
1muflon1
CC BY-SA 4.0
2020-11-18T19:21:59.310Z
@Dayne The question says “investment demand is less sensitive to the interest rate” what is the meaning of it? That is the point that I don’t understand. Can you please explain this statement?
studentp
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2020-11-18T19:25:18.957Z
Sorry @1muflon1 I don’t want to learn complete answer. I am just asking for the meaning of the sentence that “ investment demand is less sensitive to the interest rate”. What is this? I want to learn it’s meaning. But I asked for it incomplete because of not enough language.  So sorry for that.
studentp
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2020-11-18T19:26:50.830Z
@B11b consider editing it then because as it is it looks like a homework problem
1muflon1
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2020-11-18T19:27:48.080Z
Okay I have added my specific question. Thanks @1muflon1
studentp
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2020-11-18T19:31:34.083Z
@B11b I think the first half will still confuse people because that looks like a part of a question.  For example, consider first stating that in your lecture notes/textbook et there is the following statement - use > to indicate the quote and then mention you dont need solution for the question just clarification of meaning of the sentence. But I reopened it.
1muflon1
<macroeconomics><self-study><keynesian-economics>
IS LM CURVE QUESTİON
studentp
# IS LM CURVE QUESTİON

(Asked by: username_0 on 2020-11-18)

For keynesian model,

Describe how, if at all, each of the following development affect the IS and/or the LM curve, and the equilibrium (r; Y ):

Investment demand becomes less sensitive to the interest rate.

I am diffucult to interpret the meaning of this statement that Investment demand becomes less sensitive to the interest rate. Please share your idea with me. Thank you.

**Tags:** macroeconomics, self-study, keynesian-economics

> **Comments:**
> **username_1**: I'd imagine this may refer to a so-called liquidity trap. So it is worthwhile checking your notes on the liquidity trap. Yet, I am open to being mistaken on the matter.  
> **username_2**: Hint: what decides the slope of the IS curve?  
> **username_3**: I am sorry but this post does not satisfy our criteria for homework questions. Even if you have difficulty interpreting it at least make an attempt - even if the attempt is wrong nobody will think less of you for that, everyone can see that you are still learning. Here is a link to our homework question policy: https://economics.meta.stackexchange.com/questions/1465/economics-se-policy-on-homework-questions. If you edit the question to be in compliance with the policy your question will be reopened.  
> **username_0**: @username_2 The question says “investment demand is less sensitive to the interest rate” what is the meaning of it? That is the point that I don’t understand. Can you please explain this statement?  
> **username_0**: Sorry @username_3 I don’t want to learn complete answer. I am just asking for the meaning of the sentence that “ investment demand is less sensitive to the interest rate”. What is this? I want to learn it’s meaning. But I asked for it incomplete because of not enough language.  So sorry for that.  
> **username_3**: @B11b consider editing it then because as it is it looks like a homework problem  
> **username_0**: Okay I have added my specific question. Thanks @username_3  
> **username_3**: @B11b I think the first half will still confuse people because that looks like a part of a question.  For example, consider first stating that in your lecture notes/textbook et there is the following statement - use > to indicate the quote and then mention you dont need solution for the question just clarification of meaning of the sentence. But I reopened it.  

---

## 1 answers

### Answer by username_3 on 2020-11-18. Score: 1 | Accepted answer

Investment demand is part of the IS curve since the goods market is given by:

$$Y =C(Y-T) + I(Y,i) +G$$

where $I(Y,i)$ would be called investment demand (which will be some function of output and interest rate e.g. $I(Y,i)= d\_1Y-d\_2 i$. A sensitivity of investment demand to interest rate would usually be interpreted loosely as simply talking about the magnitude of effect that $i$ has on $I$ in this case $d\_2$ (or $\partial I/\partial i$) - for example Blanchard et. al. Macroeconomics: a European Perspective pp 93 uses the phrase in reference to $d\_2$. However, I think I also recalled the word to be used more narrowly in some work referring to more precisely elasticity of investment demand with respect to $i$ (i.e. $\frac{\partial I}{\partial i }\left(\frac{i}{I}\right)$), but I cant find a reference to the second example at a spot.

In any case the point is that the meaning of sensitivity of investment demand is to figure out what effect change in interest rate ($i$) has on the investment. For example, in an extreme case where $d\_2$ would be zero investment demand would be completely insensitive to changes in interest rate.

> **Comments:**
> **username_0**: Wow very explanatory answer! Many thanks. That is, this makes IS curve steeper.  
> **username_4**: [FYI](https://economics.meta.stackexchange.com/q/1879/42)  
> **username_3**: @HerrK. Thanks for bringing that to my attention I will investigate this matter and if there is any rule-violation take an action  
> **username_0**: I forgot my email address and it’s passcode, Thus I have two accounts. But I cannot use it about for 1 year. I have only account that I use is this.  
> **username_3**: @B11b its ok I looked into it and the other accounts do not show any activity now so it does not seem to break rules  

---

