Skip to content
We use only essential cookies to keep you signed in and remember your preferences. See our Cookie Policy.
TestStop
MocksPracticeResourcesIndiaBlogPricing
Sign in
Questions › DSE › DSE 2007 › Q35
2 marksMacroeconomics › IS-LM model › The slope of the IS curveHardabout 4 min

DSE 2007 Question 35: IS-LM model

Consider the macro model: C=α0+α1YC=\alpha_{0}+\alpha_{1}YC=α0​+α1​Y, I=β0+β1Y−β2iI=\beta_{0}+\beta_{1}Y-\beta_{2}iI=β0​+β1​Y−β2​i, G=G‾G=\overline{G}G=G, with α1+β1<1\alpha_{1}+\beta_{1}<1α1​+β1​<1; money market M‾/P=γ1Y−γ2i\overline{M}/P=\gamma_{1}Y-\gamma_{2}iM/P=γ1​Y−γ2​i. If the interest rate iii increases by one unit, to maintain equilibrium in the goods market, income level Y has to decrease by

Tap an option to check your answer.

Answer and worked solution

Checking your account…

Plain-text version

Consider the macro model: C=α₀+α₁Y, I=β₀+β₁Y-β₂i, G=G̅, with α₁+β₁<1; money market M̅/P=γ₁Y-γ₂i. If the interest rate i increases by one unit, to maintain equilibrium in the goods market, income level Y has to decrease by (A) β₂/(1-(α₁+β₁)) units (B) 1/(1-(α₁+β₁)) units (C) 1/(1-(α₁+β₁)+(γ₁β₂)/γ₂) units (D) 1/(1-(α₁+β₁)+(γ₁/γ₂)α₂) units

Also written as: Consider the macro model: C=alpha_0+alpha_1Y, I=beta_0+beta_1Y-beta_2i, G=G_bar, with alpha_1+beta_1<1; money market M_bar/P=gamma_1Y-gamma_2i. If the interest rate i increases by one unit, to maintain equilibrium in the goods market, income level Y has to decrease by

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

What this question tests

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

What makes the IS curve steep or flat, including the multiplier and the interest sensitivity of investment.

TestStop has 14 past-paper questions on this subtopic.

Practise IS-LM modelMore on The slope of the IS curve

Similar questions from other papers

  • CUET-PG 2026 · Q13The interest rate and price level are jointly determined by simultaneous equilibrium of:
  • GATE 2026 · Q51Consider the following IS-LM model where, C₀ is autonomous consumption, c is marginal propensity to consumption, T₀ is the autonomous tax, t is the tax rate on income…
  • IIT JAM 2026 · Q23Consider a closed economy IS-LM model with downward sloping IS curve. If there is an increase in government spending, then which one of the following statements is…
  • UGC-NET 2026 · Q10If Investment-Saving (IS) curve is less elastic, then:
  • CUET-PG 2025 · Q56Which of the following statements are correct about the IS curve? (A) It shows the combination of the interest rate and the level of income such that the money market…

Question from the DSE 2007 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.