Interest rate, income, consumption, and investment

For the Module 6 assignment, please answer the following questions:

  • Explain in words how investment multiplier and the interest sensitivity of aggregate demand affect the slope of the IS curve.
  • Explain in words how and why the income and interest sensitivities of the demand for real balances affect the slope of the LM curve.

According to the IS–LM model, what happens to the interest rate, income, consumption, and investment under the following circumstances?

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a. The central bank increases the money supply.
b. The government increases government purchases.
c. The government increases taxes.

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