The Logic Behind It:
Lower interest rates → investment increases (borrowing is cheaper) → total demand rises → higher output.
Higher interest rates → investment decreases → demand falls → lower output.
That’s why the IS curve slopes downward: there's an inverse relationship between interest rate and output.
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Economics and politics student from Germany. Interested in a broad field of topics and trying to easily break down topics from his studies to everyone.
In this post, I want to give you a first introduction into the goods market, presented through the IS-Curve. In future posts, I will conclude this rather simple and abstract model into the bigger picture. I hope this may help to understand economics a bit better in an easy way.
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