A Falling Investment Function Yields a Falling IS Curve, but a Falling

question 62

Essay

A falling investment function yields a falling IS curve, but a falling demand for real money balance curve yields a rising LM curve. Why?

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Definitions:

Kinked Demand Curve

A market theory that suggests prices have a tendency to remain stable because competitors will match price decreases but not price increases.

Cutthroat Competition

An extremely competitive market situation where competitors use aggressive tactics to undercut each other's prices, leading to very low profit margins.

Sticky Prices

A situation in economics where the prices of goods and services are slow to respond to changes in the supply and demand.

Herfindahl-Hirschman Index

A measure of market concentration to assess the level of competition within an industry.