in other word rate of interest is constant, for any given rate of interest i0, there exist some level of income such that intended investment and savings are equal. This relationship between the rate of interest and level of national income is called the IS function. We explain this with the help of diagram.
figure 15.1
The derivation of curve IS Curve in three sector economy or Keynesian
Economics.
In Three sector economy IS curve is negatively sloped
and possesses all of the same properties as when government expenditure was
ignored. the IS function, which includes government expenditure shows
the different combination of i and y. Where the goods market is in equilibrium
S+T=I+G. in panel diagram we derive graphically the IS function with
government Spending.
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