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Questions › IIT JAM › IIT JAM 2021 › Q1
1 mark, −0.333Macroeconomics › IS-LM model › Deriving the IS curveModerateabout 1 min

IIT JAM 2021 Question 1: IS-LM model

When the expected future marginal product of capital increases, then the IS curve

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Answer and worked solution

Answer: (A)

A higher expected future marginal product of capital makes investment more attractive at any given interest rate, so desired investment rises.

Higher investment demand shifts the IS curve up and to the right. The answer is (A).

The trap: (B) shifts down and to the left

A rise in the return to capital raises investment (an outward IS shift), the opposite of the inward shift in option (B).

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.

Take this paper as a timed mockMore on Deriving the IS curve

Question from the IIT JAM 2021 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.