Okay I am getting lost.
I have the IS curve
Y= (1/ (1-c-d))* ( c0-cT+I-fi+G)
Given a change in interest rate i the output is going to change in this way:
delta Y =[ (- f)/( 1-c-d) ]* delta i
given " i" on the y axis and Y on the x axis, if "f" is big/small the curve is steeper/flatter? Why? What is the right "couple" and why? I tried with numbers and calculator but what is the angle I shall consider?
Thank you so so much.
I did not study any Business Math. I use only "common sense" or reasoning in trying to solve "business" problems.
Originally Posted by 0123
Okay. So my understanding is that c, d, O, T, I and G are all constants, the way you got your delta Y.
Since i is vertical and Y is horizontal, then the slope of the graph is
slope = (delta i) / (delta Y)
slope = 1 / [(-f) /(1-c-d)]
slope = -(1-c-d) / f
---if f is big, then the slope is small, and the graph is flatter.
---if f is small, then the slope is big, and the graph is steeper.
---the negative sign only says that the graph is decreasing.
Could it be the arctan(slope)?
Since slope is tan(theta), then theta = arctan(slope) = arctan[-(1-c-d)/f].