At point 2, demand (> or <) supply, and inventory will go (up or down) An increase of will shift curve (up or down) An increase of will shift curve (up or down) An increase of will shift curve (up or down) An increase of will shift curve (up or down) We can see the shift in is greater in magnitude than the shift in the demand curve. This fact illustrates the multiplier effect. 7.3 Goods and Foreign exchange market equilibriums: IS curve The IS curve shows combinations of output and interest rate for which the goods and foreign exchange market are both in equilibriums. A fall in the interest rate will (increase or decrease) the investment, and thus total demand. As a result, the line in the Keynesian Cross will shift (up or down), and will (rise or fall). In short, when goods market is in equilibrium, interest rate and move in (the same or opposite) direction. In other words, the IS curve is downward sloping. Uncovered interest parity (UIP) states that when the foreign exchange market is in equilibrium domestic interest rate and nominal exchange rate are negatively related:
At point 2, demand (> or <) supply, and inventory will go (up or down) An increase of will shift curve (up or down) An increase of will shift curve (up or down) An increase of will shift curve (up or down) An increase of will shift curve (up or down) We can see the shift in is greater in magnitude than the shift in the demand curve. This fact illustrates the multiplier effect. 7.3 Goods and Foreign exchange market equilibriums: IS curve The IS curve shows combinations of output and interest rate for which the goods and foreign exchange market are both in equilibriums. A fall in the interest rate will (increase or decrease) the investment, and thus total demand. As a result, the line in the Keynesian Cross will shift (up or down), and will (rise or fall). In short, when goods market is in equilibrium, interest rate and move in (the same or opposite) direction. In other words, the IS curve is downward sloping. Uncovered interest parity (UIP) states that when the foreign exchange market is in equilibrium domestic interest rate and nominal exchange rate are negatively related: