Draw the IS Curve and Explain Its Shape

question 31

Essay

Draw the IS curve and explain its shape.

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Definitions:

Transactions Demand

Transactions demand refers to the amount of money that people hold for the purpose of making everyday purchases and transactions.

Medium of Exchange

This refers to an item that is widely accepted in exchange for goods and services, facilitating trade by averting the inefficiencies of a pure barter system.

Fractional Reserve Banking

A banking system where banks hold a fraction of deposits as reserves and use the rest for lending purposes.

Total Deposits

The sum of all money deposited in a bank by its customers.