When Drawn with the Interest Rate on the Vertical Axis

question 54

Multiple Choice

When drawn with the interest rate on the vertical axis and income on the horizontal axis, the IS curve will be steeper the:

• A) larger the level of government spending.
• B) smaller the level of government spending.
• C) greater the sensitivity of investment spending to the interest rate.
• D) smaller the sensitivity of investment spending to the interest rate.

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Definitions:

Stocks

Financial securities representing partial ownership in a company, allowing investors to claim on the company's assets and earnings.

Annuity

A financial product that pays out a fixed stream of payments to an individual, typically used as an income stream for retirees. It's a contract between an individual and an insurance company.

Utility Function

A utility function is a mathematical representation of a consumer's preference ranking for different bundles of goods, indicating the total satisfaction or utility derived from consuming these goods.

Wealth

The abundance of valuable resources or material possessions, or the control over such assets.