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Questions › DSE › DSE 2006 › Q43
2 marksMacroeconomics › IS-LM model › Deriving the IS curveModerateabout 3 min

DSE 2006 Question 43: IS-LM model

Consider the macroeconomic model: C=2000+0.4YDC=2000+0.4Y_DC=2000+0.4YD​; I=500−10r+0.4YI=500-10r+0.4YI=500−10r+0.4Y; G=400G=400G=400; T=1000T=1000T=1000; (M/P)D=0.2Y−50r(M/P)^D=0.2Y-50r(M/P)D=0.2Y−50r; (M/P)S=1000(M/P)^S=1000(M/P)S=1000; where YDY_DYD​ is disposable income. The equation of the IS curve for this model is

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Consider the macroeconomic model: C=2000+0.4Y_D; I=500-10r+0.4Y; G=400; T=1000; (M/P)^D=0.2Y-50r; (M/P)^S=1000; where Y_D is disposable income. The equation of the IS curve for this model is (A) Y=9500-50r (B) Y=12500-50r (C) Y=14500-100r (D) Y=14500-60r

IS-LM model has come up 137 times in 7 exams since 2004.

What this question tests

This question is on Deriving the IS curve, part of IS-LM model in Macroeconomics.

How the goods market gives a downward-sloping relation between the interest rate and income.

TestStop has 15 past-paper questions on this subtopic; the nearest in year are below.

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Question from the DSE 2006 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.